Question

Reform Traders current net operating income is $16,800 and its average operating assets are $90,000. The company's required rate of return is 15%. A new project being considered would require an investment of $28,000 and would generate annual net operating income of $3,100. What is the residual income of the new project

Answer 1

- $4,200

Step-by-step explanation:

residual income = net operating income - cost of investment

therefore

residual income = $3,100 - $28,000 x 15%

= - $4,200

The residual income of the new project is - $4,200