Question

Residual Income

The income from operations and the amount of invested assets in each division of Beck Industries are as follows:

	Income from Operations		Invested Assets
Retail Division	$90,000		500,000
Commercial Division	119,700		570,000
Internet Division	67,600		520,000

Assume that management has established a 10% minimum acceptable return for invested assets.

a. Determine the residual income for each division.

	Retail Division			Commercial Division			Internet Division
Income from operations	$90,000			$119,700			$67,600
Minimum acceptable of income from operations
Residual income

b. Which division has the most residual income?
Commercial Division

Answer 1