Question

The following data are for the Akron Division of Consolidated Rubber, Inc.:

Sales	$	820,000
Net operating income	$	59,000
Average operating assets	$	320,000
Stockholders' equity	$	82,000
Residual income	$	22,000

For the past year, the minimum required rate of return was:

Multiple Choice

• 7.20%

• 44.00%

• 11.56%

• 23.10%

Answer 1

Net operating income = $59,000

Residual income = $22,000

Average operating assets = $320,000

Residual income = Net operating income - (Average operating assets x Minimum required rate of return)

22,000 = 59,000- (320,000 x Minimum required rate of return)

320,000 x Minimum required rate of return = 37,000

Minimum required rate of return = 11.56%

third option is correct.

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