The Tipton Division of Dudley Company reported the following data last year: Return on investment 20 % Minimum required rate of return 12 % Residual income $ 50,000 Tipton Division's average operating assets last year were: Multiple Choice A. $625,000 B. $250,000 C. $416,677 D. $333,333.

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3 June, 06:17

The Tipton Division of Dudley Company reported the following data last year: Return on investment 20 % Minimum required rate of return 12 % Residual income $ 50,000 Tipton Division's average operating assets last year were: Multiple Choice A. $625,000 B. $250,000 C. $416,677 D. $333,333.

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Answers (1)

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River Chan · Answer 1

A. $625,000

Explanation:

We know that,

Residual income = Average operating assets * (Return on investment - Minimum Required Rate of Return)

$50,000 = Average operating assets * (20% - 12%)

$50,000 = Average operating assets * 8%

So, the average operating assets would be

= $50,000 : 8%

= $625,000

We simply apply the formula by considering all the items which are given in the question