Question

Beretta has an roi of 16% based on revenues of $400,000. the capital turnover is 2. what is the residual income if the target rate of returnl is 9%?

O $14,000
O $64,000
O $36,000
O $4,000 negative

Answer 1

The residual income for Beretta is $46,000.

Step-by-step explanation:

To calculate the residual income, we need to first calculate the required return on investment (ROI) using the formula:

ROI = Net Income / Investment

In this case, the ROI is given as 16% and the revenue is $400,000. Hence, we can calculate the net income as:

Net Income = ROI * Investment = 16% * $400,000 = $64,000

Next, we can calculate the capital turnover using the formula:

Capital Turnover = Revenue / Investment

Since the capital turnover is given as 2, we can calculate the investment as:

Investment = Revenue / Capital Turnover = $400,000 / 2 = $200,000

Now, we can calculate the residual income using the formula:

Residual Income = Net Income - (Required Rate of Return * Investment)

Given that the required rate of return is 9%, we can calculate the residual income as:

Residual Income = $64,000 - (9% * $200,000) = $64,000 - $18,000 = $46,000

Therefore, the residual income is $46,000.