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Juniper Design Ltd. of Manchester, England, is a company specializing in providing design services to residential developers. Last year the company had net operating income of $450,000 on sales of $1,200,000. The company’s average operating assets for the year were $1,400,000 and its minimum required rate of return was 13%.

Required:

Compute the company’s residual income for the year.

Respuesta :

Answer:

$268,000

Explanation:

Given that,

Last year net operating income = $450,000

Sales = $1,200,000

Average operating assets = $1,400,000

Minimum required rate of return = 13%

Minimum required return:

= 13% × Average operating assets

= 0.13 × $1,400,000

= $182,000

Therefore,

Residual income:

= Net operating income - Minimum required return

= $450,000 - $182,000

= $268,000

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