Moon Beverages Corporation provides the following financial information:
-Calculate the residual income (RI)of Moon Corp.

Question

Moon Beverages Corporation provides the following financial information:  
-Calculate the residual income (RI)of Moon Corp.

Quizplus · Accepted Answer

Residual Income (RI) = Net Income - (Required Rate of Return x Total Assets)
Required Rate of Return = 14%
Total Assets = $6,500,000

RI = $903,000 - (0.14 x $6,500,000)
RI = $903,000 - $910,200
RI = -$7,200

Since the RI is negative, it means that the company did not earn enough to cover the required rate of return. Therefore, the company needs to earn more income to cover its cost of capital. Option C is the closest positive value to zero, which means that it is the best choice. The company needs to increase its net income or decrease its total assets to improve its RI.

Moon Beverages Corporation Provides the Following Financial Information