Which of the following is the correct formula to compute residual income?
A) Average operating assets - Net operating income
B) Average operating assets - (Net operating income ´ Minimum required rate of return)
C) Net operating income ´ Minimum required rate of return
D) Net operating income - (Average operating assets ´ Minimum required rate of return)

Question

Quizplus · Accepted Answer

Residual income is calculated by subtracting the product of the average operating assets and the minimum required rate of return from the net operating income. Therefore, the correct formula is D) Net operating income - (Average operating assets ´ Minimum required rate of return).

Which of the Following Is the Correct Formula to Compute