Fine Furnishings Pty Ltd earned residual income of $40 000 during the year. The net profit was $160 000 during the year and the cost of capital was 12 per cent. What was the return on investment for the year?

Question

Quizplus · Accepted Answer

Residual income is calculated as Net Profit - (Investment * Cost of Capital). Given that the residual income is $40,000 and the net profit is $160,000, we can set up the equation $160,000 - (Investment * 12%) = $40,000. Solving for Investment gives us $1,000,000. Therefore, the return on investment (ROI) is Net Profit / Investment = $160,000 / $1,000,000 = 16%.

Fine Furnishings Pty Ltd Earned Residual Income of $40 000