Crimpy Company has total assets of $900,000, a 10% target rate of return, and a residual income of ($4,500). Which of the following statements is correct?
A) Crimpy's return on investment can't be determined given the information provided.
B) Crimpy's operating income was $85,500.
C) Crimpy's residual income would decrease $9,000 if the target rate of return was reduced to 9%.
D) Crimpy's return on investment will increase when the target rate of return decreases.

Question

Quizplus · Accepted Answer

Crimpy's operating income can be calculated using the formula for residual income: Operating Income - (Target Rate of Return * Total Assets) = Residual Income. Solving for Operating Income gives $85,500.

Crimpy Company Has Total Assets of $900,000, a 10% Target