Final answer:
Residual income is the net operating income that an investment center earns above the minimum required return on the investment in operating assets. It indicates the additional income generated by the investment.
Step-by-step explanation:
Residual income is the net operating income that an investment center earns above the minimum required return on the investment in operating assets. It is a measure of the profitability of the investment and indicates how much additional income is generated beyond what is needed to cover the cost of the investment. For example, if an investment center earns $50,000 in net operating income and the minimum required return on the investment is $40,000, the residual income would be $10,000.