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15 December, 07:08

zzy Division of Marine Boats Corporation had the following results last year (in thousands). Sales $ 4 comma 700 comma 000 Operating income $ 600 comma 000 Total assets $ 3 comma 600 comma 000 Current liabilities $ 220 comma 000 Management's target rate of return is 12 % and the weighted average cost of capital is 5 %. What is the Izzy Division's Residual Income (RI) ? A. $ 72 comma 000 B. $ 432 comma 000 C. $ 168 comma 000 D. $ 600 comma 000

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  1. 15 December, 07:51
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    C. $ 168 comma 000

    Explanation:

    The computation of the residual income is shown below:

    = Operating income - minimum return

    where,

    Operating income is $600,000

    And, the minimum return equal to

    = Invested asset amount * minimum rate of return

    = $3,600,000 * 12%

    = $432,000

    Now put these values to the above formula

    So, the value would equal to

    = $600,000 - $432,000

    = $168,000

    We simply applied the above formula
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Home » Business » zzy Division of Marine Boats Corporation had the following results last year (in thousands). Sales $ 4 comma 700 comma 000 Operating income $ 600 comma 000 Total assets $ 3 comma 600 comma 000 Current liabilities $ 220 comma 000 Management's target
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