eBook Calculator Residual Income Washington Company has two divisions: the Adams

Question

eBook Calculator Residual Income Washington Company has two divisions: the Adams Division and the Jefferson Division. The following information pertains to last years results: Adams Division Jefferson Division Net (after-tax) income $659,450 $368,550 Total capital employed 4,160,000 3,737,500 In addition, washington Company's top management has set a minimum acceptable rate of return equal to 7%. Required: Enter negative values as negative numbers. 1. Calculate the residual income for the Adams Division. 2. Calculate the residual income for the Jefferson Division. Previous Next Check My Work

Explanation / Answer

Residual income=Net income-(Minimum rate of return*Total capital employed)

Residual income for:

Adams Division=659450-(0.07*4,160,000)=$368250

Jefferson Division=368550-(3737500*0.07)=$106925

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