Question

Residual income is the:A. difference between the net sales that the analyst expects the firm to generate and the required earnings of the firm. B. difference between the net income that the analyst expects the firm to generate and the required earnings of the firm. C. difference between the common stock that the analyst expects the firm to issue and the required earnings of the firm. D. difference between the expenses that the analyst expects the firm to generate and the required earnings of the firm.

Answer 1

The correct answer is letter "D": difference between the expenses that the analyst expects the firm to generate and the required earnings of the firm.

Step-by-step explanation:

Residual income represents the amount that is left after a company has paid all its capital costs. It is the result of acquiring assets to generate steady revenue over time. Real state, bonds, or stocks are examples of corporate and individual residual income.

Therefore, we could say that residual income is calculated by subtracting the expenses of a firm from its expected earnings out of different sources.