v2cengagenowcom CengageNC Cengage Calculahor Residual Income

v2.cengagenow.com CengageNC Cengage Calculahor Residual Income The income from operations and the amount of invested assets in each division of Devon Industries are as follows Income from Operations Invested Assets 130,200 151,800 99,200 620,000 660,000 620,000 Sporting Goods Division Health Care Division Commercial Division Assume that management has established a 12% minimum acceptable rate of return for invested assets. a. Determine the residual income for each division. Sporting Goods Division Health Care Division Commercial Division Income from operations Minimum amount of income from operations Residual income b. Which division has the most residual income? $130,200 $151,800 $99,200

Solution

S.No Particulars Sporting Goods Division Health care Division Commercial Division (a) Invested assets 620000 660000 620000 (b) Minimum acceptable rate of return 12% 12% 12% (c ) Minimum amount of Income from Operations [(a)*(b)] 74400 79200 74400 (a) Computation of Residual Income S.No Particulars Sporting Goods Division Health care Division Commercial Division (a) Income from Operations $                              1,30,200 $                     1,51,800 $                          99,200 (b) Minimum amount of Income from Operations $                                 74,400 $                         79,200 $                          74,400 (c ) Residual Income [(a)- (b)] $                                 55,800 $                         72,600 $                          24,800 (b) Which division has the most residual income Health care division has the most residual Income