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 $1,500,000. The company’s average operating assets for the year were $1,700,000 and its minimum required rate of return was 16%.
Required:
Compute the company’s residual income for the year.
Average operating assets ???
net oiperating income ???
Minimum required Retnum ???
Residual Income ???
The Solution
Average Operating Assest = $1,700,000
Net Operating Income =$490,000
Minimum required Return (1700000*16%) = $272,000
Residual Income = Net operating Income- (average Operating Assets *Minimum required rate of return
Residual Income (490000-272000)=$218000