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Thurston, Inc. experienced a 14% rate of return on average investment of $1,000,000. If the required...

Thurston, Inc. experienced a 14% rate of return on average investment of $1,000,000. If the required rate of return is 12%, then residual income is:

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Answer #1

Given that :

Average investment = $1000000

Actual rate of return = 14%

Required rate of return = 12%

RESIDUAL IMCOME is that part of the net income in excess of the required return on that investment.

Residual income

= Actual return on investment - Desired return on investment

= ($1000000×14%) - ( $1000000×12%)

= $140000 - $120000

= $20000.

Therefore, the residual income is $20000.

_____×_____

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