Consider a particular division that earns an after-tax profit of $40 million and has total assets worth $120 million.The residual income of the division is ______ if its required cost of capital is 20%.
A)$16 million
B)$40 million
C)$24 million
D)$8 million

Question

Quizplus · Accepted Answer

Residual income is calculated as the after-tax profit minus the product of the total assets and the required rate of return. Here, it's $40 million - ($120 million * 20%) = $40 million - $24 million = $16 million.

Consider a Particular Division That Earns an After-Tax Profit of $40