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1 June, 22:41

The manager of Synergy Company's Stock Division projects the following for next year: Sales $195,000 Operating income 70,000 Average Operating assets 385,000 The manager can invest in an additional project that would require $50,000 investment in additional assets and would generate $9,000 of additional income. The company's minimum rate of return is 15%. What is the residual income for the Stock Division without the additional investment?

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  1. 1 June, 23:07
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    Answer: $12,250

    Explanation:

    Given Data;

    Sales = $195,000

    Operating income = $70,000

    Average Operating assets = 385,000 Additional investment = $50,000

    minimum rate of return is = 15%.

    Residual income = operating income - (minimum required return x operating assets).

    = $70,000 - (0.15 * 385,000)

    = $12,250

    Residual income without the Added investments is $12,250
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