Use the following information of the Toro division of Hondo Corporation to answer the next question(s):
Total divisional assets are $800,000. The firm's minimum required rate of return is 10%.
-Residual income for the Toro division is
A) $50,000.
B) $70,000.
C) $150,000.
D) $170,000.

Question

Use the following information of the Toro division of Hondo Corporation to answer the next question(s):
  Total divisional assets are $800,000. The firm's minimum required rate of return is 10%.
-Residual income for the Toro division is
A) $50,000. 
B) $70,000. 
C) $150,000. 
D) $170,000.

Quizplus · Accepted Answer

To calculate residual income, we first need to subtract the minimum required rate of return from the Toro division's return on investment:

ROI = Total divisional assets - Minimum required rate of return = $800,000 - ($800,000 x 10%) = $720,000

Residual income = ROI - Minimum required rate of return = $720,000 - $80,000 = $640,000

Therefore, the residual income for the Toro division is $70,000.

Use the Following Information of the Toro Division of Hondo