Question

Pine Corp. has revenues of $520,000 resulting in an operating income of $66,560. Invested assets total...

Pine Corp. has revenues of $520,000 resulting in an operating income of $66,560. Invested assets total $611,000. Residual income is $24,000. Calculate the new residual income if sales increase by 10% and the profit margin and invested assets remain the same. (Do not round your intermediate calculations.)

A $0

B $30,656

C $42,560

D $10,496

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Answer #1
profit margin = 66,560/520,000
12.80%
total sales = 520,000*110%
572000
profit on new sales
572000*12.8%
73216
Residual income
net operating income -(Average operating asset* min rate of return)
24000 = 66,560 - (611000*x%)
x = 6.97%
or   66,560 - 42560 = 24000
new residual income
73,216 - (611000*6.97%)
73216-42560
30656
option B) $30,656 answer
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