Foxmoor Corporation uses an imputed interest rate of 13% in the calculation of residual income. Division X, which is part of Foxmoor, had invested capital of $1,200,000 and an ROI of 16%. On the basis of this information, X's residual income was:

Question

Luna Moreno

Business

10 June, 10:22

Foxmoor Corporation uses an imputed interest rate of 13% in the calculation of residual income. Division X, which is part of Foxmoor, had invested capital of $1,200,000 and an ROI of 16%. On the basis of this information, X's residual income was:

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Answers (1)

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Heidy Hebert · Answer 1

X's residual income was: $36,000

Explanation:

Division X, which is part of Foxmoor, had invested capital of $1,200,000 and an ROI of 16%. ROI is calculated by using following formula:

ROI = (Net Income / Total Investment) x100%

Net income = (ROI x Total Investment) / 100% = (16% x $1,200,000) / 100% = $192,000

Foxmoor Corporation uses an imputed interest rate of 13% in the calculation of residual income.

X's residual income = Net income - 13% x $1,200,000 = $192,000 - $156,000 = $36,000