Exercise 9-2 Residual Income [LO9-2] Juniper Design Ltd. of Manchester, England,

Question

Exercise 9-2 Residual Income [LO9-2]

Juniper Design Ltd. of Manchester, England, is a company specializing in providing design services to residential developers. Last year the company had net operating income of $490,000 on sales of $1,200,000. The company’s average operating assets for the year were $1,400,000 and its minimum required rate of return was 15%.

Compute the company’s residual income for the year.

Juniper Design Ltd. of Manchester, England, is a company specializing in providing design services to residential developers. Last year the company had net operating income of $490,000 on sales of $1,200,000. The company’s average operating assets for the year were $1,400,000 and its minimum required rate of return was 15%.

Explanation / Answer

residual income=net operating income-(average operating assets*minimum required rate of return )

=490,000-(1,400,000*15%)

which is equal to

=280,000

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