Residual Income?
March 8, 2009 – 1:33 am
Jay L asked:
The company had $360,000 in total assets and $94,000 in operating profit this year, and the company requires at least a 12% return on assets. Compute the company’s residual income.
Brent
The company had $360,000 in total assets and $94,000 in operating profit this year, and the company requires at least a 12% return on assets. Compute the company’s residual income.
Brent
One Response to “Residual Income?”
The residual income is $50,800.
Residual income is the income in excess of a desired minimum return. The company requires a return of $43,200 (calculated by taking the total assets of $360,000 times the required 12%). The residual income is the excess of the $94,000 operating profit over the required return of $43,200, which gives you $50,800.
By vallygval on Mar 9, 2009