In the last financial year a company made a profit of $100,000 on sales of $1,250,000. It has assets of $800,000 and a required rate of return 9%. What was the company's residual income in the last financial year?

Question

Quizplus · Accepted Answer

Residual income = Net income - (Required rate of return x Total assets)
Net income = $100,000
Total assets = $800,000
Required rate of return = 9%

Residual income = $100,000 - (0.09 x $800,000)
Residual income = $100,000 - $72,000
Residual income = $28,000

Therefore, the company's residual income in the last financial year was $28,000.

In the Last Financial Year a Company Made a Profit