eBook etermining Missing Items in Rate of Return and Residual Income Computation

Question

eBook etermining Missing Items in Rate of Return and Residual Income Computations ata for Schmidt Company are presented in the following table of rates of return on investment and residual incomes MinimumMinimum Acceptable Invested Income Rate of Return Rate of from on Investment Return Income from Operations Residual Income Operations 13% $870,000 $208,800 $500,000 $310,000 $230,000 $46,000 Determine the missing values, identified by the letters above. For all amounts, round to the nearest whole $60,000 $20,000 $34,100 14% 6) 1196 number. a. d. e. g. h. k.

Explanation / Answer

a) Return on investment = 208800*100/870000 = 24%

b) Minimum acceptable income from operation = 870000*13% = 113100

c) Residual income = (208800-113100) = 95700

d) Income from operation = 60000+20000 = 80000

e) Rate of return on investment = 80000*100/500000 = 16%

f) Minimum rate of return = 60000*100/500000 = 12%

g) Income from operation = 310000*14% = 43400

h) Minimum rate of return = 34100*100/310000 = 11%

i) Residual income = (43400-34100) = 9300

j) Return on investment = (46000*100/230000) = 20%

k) Minimum acceptable income = (230000*11%) = 25300

l) Residual income = (46000-25300) = 20700

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