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9 February, 06:08

Cabell Products is a division of a major corporation. Last year the division had total sales of $25,060,000, net operating income of $1,503,600, and average operating assets of $7,518,000. The company's minimum required rate of return is 19%. The division's residual income is closest to:

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  1. 9 February, 06:22
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    The division's residual income is $75,180

    Explanation:

    Residual income : The residual income is that income which is left over after paying taxes and expenses

    The formula to compute residual income

    = Net operating income - (Average operating assets * minimum required rate of return)

    = $1,503,600 - ($7,518,000 * 19%)

    = $1,503,600 - $1,428,420

    = $75,180

    The total sale is irrelevant while computing the residual income. Thus, it is not considered in computation part.

    Hence, The division's residual income is $75,180
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