Question

The manager of Stock Division projects the following for next year: Sales $185,000 Operating income $58,500 Operating assets $375,000 The manager can invest in an additional project that would require $40,000 investment in additional assets and would generate $6,000 of additional income. The company's minimum rate of return is 14%. What is the residual income for Stock Division without the additional investment

Answer 1

Answer: $6000

Step-by-step explanation:

The residual income for Stock Division without the additional investment will e calculated as:

= Operating Income - (Operating assets × Required rate of return)

= $58500 - ($375000 × 14%)

= $58500 - $52500

= $6000