Residual Income The Avila Division of Maldonado Company had operating income last year of $112,300 and average operating assets of $760,000. Maldonado's minimum acceptable rate of return is 10%. Required: 1. Calculate the residual income for the Avila Division. Round your answer to the nearest dollar. Residual income $ 2. Was the ROI for the Avila Division greater than, less than, or equal to 10%?

Question

Simeon

Business

7 December, 07:37

Residual Income The Avila Division of Maldonado Company had operating income last year of $112,300 and average operating assets of $760,000. Maldonado's minimum acceptable rate of return is 10%. Required: 1. Calculate the residual income for the Avila Division. Round your answer to the nearest dollar. Residual income $ 2. Was the ROI for the Avila Division greater than, less than, or equal to 10%?

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Joel Benson · Answer 1

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

=$112300 - (760,000*10%) = $36,300

ROI=Net operating income/Average operating assets

= (112300/760,000) = 14.78%

ROI was greater than 10%