Question

Juniper Design Ltd. of Manchester, England, is a company specializing in providing design services to residential developers. Last year the company had net operating income of $400,000 on sales of $1,500.00. The company’s average operating assets for the year were $ 1,700.000 and its minimum required rate of return was 11%.

Required:

Compute the company’s residual income for the year.

Residual income

Answer 1

Calculation of residual income:

Residual income= Netoperating income- (cost of operating assets*required return)

Residual income= 400000-(1700000*0.11)= 213000

Residual income=$213000