A segment with an ROI of 30% has a profit of $84,000. The company's required rate of return on segment investments is 18%. The segment's residual income is
A) $50,400
B) $25,200
C) $26,712
D) $33,600

Question

Quizplus · Accepted Answer

Residual income is calculated as the profit minus the product of the required rate of return and the investment. First, calculate the investment: $84,000 / 0.30 = $280,000. Then, calculate the required return: $280,000 * 0.18 = $50,400. Finally, subtract the required return from the profit: $84,000 - $50,400 = $33,600.

A Segment with an ROI of 30% Has a Profit