Question

If operating income is $20,000, operating assets are $100,000, and desired ROI is 15%, what is residual income?

Answer 1

Residual income is calculated by subtracting the desired return on investment (ROI) from the operating income. In this case, the residual income is $5,000.

Step-by-step explanation:

Residual income is calculated by subtracting the desired return on investment (ROI) from the operating income.

The formula for residual income is:

Residual Income = Operating Income - (Operating Assets x Desired ROI)

Using the given information, we can calculate the residual income:

Residual Income = $20,000 - ($100,000 x 0.15) = $20,000 - $15,000 = $5,000