The Produce Division of Saveway Shop had invested capital of $520,000 last year with $20,000 of noninterest-bearing current liabilities.If the minimum required rate of return is 9 percent, the cost of capital is 7 percent, and last year's residual income was $52,000, how much was last year's NOPAT?

Question

Quizplus · Accepted Answer

Residual income is calculated as NOPAT - (Invested Capital * Cost of Capital). Given that the residual income is $52,000, the cost of capital is 7%, and the invested capital is $520,000 - $20,000 (since noninterest-bearing current liabilities are subtracted from total capital to get invested capital), we have: $52,000 = NOPAT - (($500,000) * 7%). Solving for NOPAT gives us $88,400.

The Produce Division of Saveway Shop Had Invested Capital of $520,000