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The Magnolia Company's Division A has income from operations of $80,000 and assets of $400,000. The minimum acceptable rate of return on assets is 12%. What is the residual income for the division?

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chilljain33

The residual income for the Division A of Magnolia Company for an income from operations of $80,000 will be $32,000.

What is residual income?

Residual Income is the total of total income from operations less the minimum acceptable rate of return on the deployed assets for such operations over a financial period.

Using the above information, it can be ascertained that the residual income will be,

[tex]\rm Residual\ Income = Income\ from\ Operations - Rate\ of\ Return\ x\ Assets\\\rm Residual\ Income = 80000- (12\%\ x\ 400000)\\\\\rm Residual\ Income = \$32,000[/tex]

Hence, the residual income will be as computed above.

Learn more about residual income here:

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