Question

Which of the following will not result in an increase in the residual income, assuming other factors remain constant?

A. An increase in sales.
B. An increase in the minimum required rate of return.
C. A decrease in expenses.
D. A decrease in operating assets.

Answer 1

The minimum required rate of return does not result in an increase in the residual income. Option b.

Step-by-step explanation:

The correct answer is: B. An increase in the minimum required rate of return. In residual income analysis, residual income is the amount of income that remains after deducting a minimum acceptable return on investment from a company's net income. Residual income increases when net income exceeds the minimum required rate of return. Therefore, an increase in the minimum required rate of return would not result in an increase in residual income, assuming other factors remain constant.