Question

Residual Income

The operating income and the amount of invested assets in each division of Conley Industries are as follows:

	Operating income		Invested Assets
Retail Division	$176,400		$840,000
Commercial Division	112,700		490,000
Internet Division	96,900		570,000

Assume that management has established a 12% minimum acceptable return for invested assets.

a. Determine the residual income for each division.

	Retail Division			Commercial Division			Internet Division
Operating income	$176,400			$112,700			$96,900
Minimum acceptable operating income as a percent of invested assets
Residual income	$			$			$

b. Which division has the most residual income?

Answer 1