Cabell Products is a division of a major corporation. Last year the division had total sales of $28,770,000, net operating income of $1,611,120, and average operating assets of $5,754,000. The company's minimum required rate of return is 10%.The division's residual income is closest to:
A) $1,611,120
B) $1,035,720
C) $(1,150,800)
D) $2,186,520

Question

Quizplus · Accepted Answer

Residual income = Net operating income - (Average operating assets x Minimum required rate of return)
Residual income = $1,611,120 - ($5,754,000 x 10%)
Residual income = $1,611,120 - $575,400
Residual income = $1,035,720

Therefore, the closest residual income to Cabell Products is $1,035,720, which is option B.

Cabell Products Is a Division of a Major Corporation