Question

is Question: 1 pt The Box Manufacturing Division of the Alied Paper Company reported the following results from the past year, Shareholders require a return of 6% Management calculated a weighted average cost of capital (WACC) of 5 Ali's corporate tax rate is 25% $500.000 Operating income 150.000 Totales 1400.000 Currenties 100 000 What is the division's Residual income (RY? OA $37.500 OB 566,000 OC. $120.000 OD. $80.000

Answer 1

The residual income formula is calculated by subtracting the product of the minimum required return on capital and the average cost of the capital from the operating income. So, as per the given question the residual income equal to $80, 000.00

Minimum required return = 5% of total assets

ie 5% of $1, 400,000 = $70, 000

Residual Income = Operating Income - Minimum required return

Residual Income = $150, 000 - $70, 000

Residual Income = $80,000