The following data pertains to the Retail Division of Motor Express: $$\begin{array} { l r }
\text { Sales } & \$ 700,000 \
\text { Invested capital } & 200,000 \
\text { Net operating profit after taxes } & 49,000 \
\text { Noninterest-bearing current liabilities } & 20,000
\end{array}$$ The minimum rate of return specified by Motor Express is 12 percent and the cost of capital is 8 percent. How much is residual income?

Question

The following data pertains to the Retail Division of Motor Express: $$\begin{array} { l r } 
\text { Sales } & \$ 700,000 \
\text { Invested capital } & 200,000 \
\text { Net operating profit after taxes } & 49,000 \
\text { Noninterest-bearing current liabilities } & 20,000
\end{array}$$ The minimum rate of return specified by Motor Express is 12 percent and the cost of capital is 8 percent. How much is residual income?

Quizplus · Accepted Answer

Residual income = Net operating profit after taxes - (Minimum rate of return * Invested capital)= 49,000 - (0.12 * 200,000)= 49,000 - 24,000= $25,000

The Following Data Pertains to the Retail Division of Motor