REB Service Co. is a computer service center. For the month of May, REB had the

ID: 2478898 • Letter: R

Question

REB Service Co. is a computer service center. For the month of May, REB had the following operating statistics:

Based on the above information, which one of the following statements is correct? REB has a: (Calculate ROI based on Net profit after taxes)

A. return on investment of 6%

B. residual income of $(7,975)

C. return on investment of 8.93%

D. residual income of $(35,525)

REB Service Co. is a computer service center. For the month of May, REB had the following operating statistics:

Answer - D. residual income of $(35,525)

Return on Investment = Net profit after interest and tax / Total Assets

= $36,975/$1,450,000

= 2.55%

Residual income = Net profit after interest and tax – ( Total Assets * Cost of capital)

= $36,975 – ($1,450,000*5%)

= $(35,525)

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