Holt Company Ltd determined residual income for the year of $22 000. The company's cost of capital was 12 per cent, the investment turnover was 2.0, and capital invested was $400 000. What was Holt Company's profit during the year?
A) $26 000
B) $48 000
C) $74 000
D) $70 000

Question

Quizplus · Accepted Answer

Residual income is calculated as profit minus the product of capital invested and cost of capital. Given residual income is $22,000, cost of capital is 12%, and capital invested is $400,000, the profit can be calculated as follows: Profit = Residual Income + (Capital Invested * Cost of Capital) = $22,000 + ($400,000 * 0.12) = $70,000.

Holt Company Ltd Determined Residual Income for the Year of $22