What is the residual income for a firm with $1 million in total capital, $300,000 in net income, and a 20% cost of capital?
A)$400,000
B)$300,000
C)$200,000
D)$100,000 Total capital x cost of capital
$1 million x .2 = $200,000
Residual income = Net Income - Cost of Capital

Question

Quizplus · Accepted Answer

Residual income is calculated as Net Income minus the Cost of Capital. Here, the cost of capital is $200,000 ($1 million x 20%). Therefore, the residual income is $300,000 (Net Income) - $200,000 (Cost of Capital) = $100,000.

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