Residual Income
The income from operations and the amount of invested assets in each division of Beck Industries are as follows:
| Income from Operations | Invested Assets | |||
| Retail Division | $160,600 | $730,000 | ||
| Commercial Division | 205,000 | 820,000 | ||
| Internet Division | 202,800 | 780,000 | ||
Assume that management has established a 8% minimum acceptable return for invested assets.
a. Determine the residual income for each division.
| Retail Division | Commercial Division | Internet Division | |||||||
| Income from operations | $160,600 | $205,000 | $202,800 | ||||||
| Minimum acceptable income from operations as a percent of invested assets | |||||||||
| Residual income | $ | $ | $ | ||||||
b. Which division has the most residual
income?
a.Residual income for each division.
| Particulars | Retail Division | Commercial Division | Internet Division |
| Income from operations | 1,60,600 | 2,05,000 | 2,02,800 |
| Less; Minimum acceptable income from operations as a percent of invested assets | 58,400 | 65,600 | 62,400 |
| Residual income | 1,02,200 | 1,39,400 | 1,40,400 |
(b)-"INTERNET DIVISION" has the most residual Income of $140,400
Residual Income The income from operations and the amount of invested assets in each division of...