Izzy Division of Marine Boats Corporation had the following results last year (in thousands).

Management's target rate of return is 10% and the weighted average cost of capital is 8%.
What is the Izzy Division's Residual Income (RI)?

Question

Izzy Division of Marine Boats Corporation had the following results last year (in thousands).

Management's target rate of return is 10% and the weighted average cost of capital is 8%.
What is the Izzy Division's Residual Income (RI)?

Quizplus · Accepted Answer

D)
Target Return = Total Assets × Required Return
400,000 = 4,000,000 × 10%
Residual Income = Operating Income - Target Return
300,000 = 700,000 - 400,000

Izzy Division of Marine Boats Corporation Had the Following Results