The Country Garden Company's current net operating income is $16,800 and its average operating assets are $80,000. The Country Garden's required rate of return is 18%. A new project being considered would require an investment of $15,000 and would generate annual net operating income of $3,000. What is the residual income of the new project?
A) 20.8%.
B) 20%.
C) $(150).
D) $300.

Question

Quizplus · Accepted Answer

Residual income is calculated as the net operating income minus the required return on investment. The required return is 18% of $15,000, which is $2,700. The residual income is $3,000 - $2,700 = $300.

The Country Garden Company's Current Net Operating Income Is $16,800