Question

zzy Division of Marine Boats Corporation had the following results last year​ (in thousands). Sales $ 4 comma 700 comma 000 Operating income $ 600 comma 000 Total assets $ 3 comma 600 comma 000 Current liabilities $ 220 comma 000 ​Management's target rate of return is 12​% and the weighted average cost of capital is 5​%. What is the Izzy​ Division's Residual Income​ (RI)? A. $ 72 comma 000 B. $ 432 comma 000 C. $ 168 comma 000 D. $ 600 comma 000

Answer 1

C. $ 168 comma 000

Step-by-step explanation:

The computation of the residual income is shown below:

= Operating income - minimum return

where,

Operating income is $600,000

And, the minimum return equal to

= Invested asset amount × minimum rate of return

= $3,600,000 × 12%

= $432,000

Now put these values to the above formula

So, the value would equal to

= $600,000 - $432,000

= $168,000

We simply applied the above formula