Extan division of World Corporation reported a residual income of $200 000.The division had $8 million of invested capital and a profit of $1 million.What is the imputed interest rate?

Question

Quizplus · Accepted Answer

Residual income = Actual profit - (Imputed interest rate x Invested capital)
$200,000 = $1,000,000 - (Imputed interest rate x $8,000,000)
Imputed interest rate = ($1,000,000 - $200,000) / $8,000,000
Imputed interest rate = 0.1 or 10%

Extan Division of World Corporation Reported a Residual Income of $200