Assume the Hiking Shoes division of the Simply Shoes Company had the following results last year (in thousands). Management's target rate of return is 10% and the weighted average cost of capital is 30%. Its effective tax rate is 40%.- Sales: $11,000,000- Operating income: $1,100,000- Total assets: $4,000,000- Current liabilities: $780,000What is the division's Residual Income (RI)?Options:- A. $100,000- B. $4,400,000- C. $700,000- D. $280,000(Correct answer is highlighted: C. $700,000)

Residual income: Residual income means the excess of income earned over the desired income. Desired income is calculated based on a minimum required rate of return. Residual income = Operating income - Desired income where, Desired income = Operating assets x minimum required rate of returnDesired income = Operating assets x minimum required rate of return = $4,000,000 x 10% = $400,000 Residual income = Operating income - Desired income = $1,100,000 - $400,000 = $700,000 Option c. $700,000 is the correct answer.

Business

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Assume the Hiking Shoes division of the Simply Shoes Company had the following results last year (in thousands). Management's target rate of return is 10% and the weighted average cost of capital is 30%. Its effective tax rate is 40%. Sales Operating income Total assets. Current liabilities What is the division's Residual Income (RI)? OA. $100,000 OB. $4,400,000 OC. $700,000 OD. $280,000 $11,000,000 1,100,000 4,000,000 780,000

Assume the Hiking Shoes division of the Simply Shoes Company had the following results last year (in thousands). Management's target rate of return is 10% and the weighted average cost of capital is 30%. Its effective tax rate is 40%. Sales Operating income Total assets. Current liabilities What is the division's Residual Income (RI)? OA. $100,000 OB. $4,400,000 OC. $700,000 OD. $280,000 $11,000,000 1,100,000 4,000,000 780,000

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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