The Top Hat Division of Blandon's Fine Menswear had the following results last year (in thousands).

Management's target rate of return is 12% and the weighted average cost of capital is 9%.
What is the Top Hat Division's Residual Income (RI)?

Question

The Top Hat Division of Blandon's Fine Menswear had the following results last year (in thousands).

Management's target rate of return is 12% and the weighted average cost of capital is 9%.
What is the Top Hat Division's Residual Income (RI)?

Quizplus · Accepted Answer

D)
Target Return = Total Assets × Required Return
360,000 = 3,000,000 × 12%
Residual Income = Operating Income - Target Return
315,000 = 675,000 - 360,000

The Top Hat Division of Blandon's Fine Menswear Had the Following