Question

Juniper Design Ltd. of Manchester, England, is a company specializing in providing design services to residential developers. Last year the company had net operating income of $430,000 on sales of $1,300,000. The companyâs average operating assets for the year were $1,500,000 and its minimum required rate of return was 10%.

Required:Compute the companyâs residual income for the year.Average Operating Assets-Net Operating Income-Minimum required return-Residual income-

Answer 1

Answer: $280,000

Step-by-step explanation:

Residual income can be calculated by the formula:

= Net operating income - (Average operating asset * Minimum required rate)

= 430,000 - (1,500,000 * 10%)

= 430,000 - 150,000

= $280,000