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Calculating Residual Income Forchen, Inc., provided the following information for two of its divisions for last year: Sales Operating income Operating assets, January 1 Operating assets, December 31 Small Appliances Division $34,650,000 2,587,400 6,394,000 7,470,000 Cleaning Products Division $31,370,000 1,252,900 5,600,000 6,720,000 Forchen, Inc., requires an 8 percent minimum rate of return. Required: 1. Calculate residual income for the Small Appliances Division. $ 2. Calculate residual income for the Cleaning Products Division. $ 3. What if the minimum required rate of return was 9 percent? How would that affect the residual income of the two divisions? Small Appliances Division residual income would be • higher. • lower. unaffected

Calculating Residual Income Forchen, Inc., provided the following information for two of its divisions for last year: Sales Operating income Operating assets, January 1 Operating assets, December 31 Small Appliances Division $34,650,000 2,587,400 6,394,000 7,470,000 Cleaning Products Division $31,370,000 1,252,900 5,600,000 6,720,000 Forchen, Inc., requires an 8 percent minimum rate of return. Required: 1. Calculate residual income for the Small Appliances Division. $ 2. Calculate residual income for the Cleaning Products Division. $ 3. What if the minimum required rate of return was 9 percent? How would that affect the residual income of the two divisions? Small Appliances Division residual income would be • higher. • lower. unaffected

FINANCIAL ACCOUNTING
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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Calculating Residual Income Forchen, Inc., provided the following information for two of its divisions for last year: Sales Operating income Operating assets, January 1 Operating assets, December 31 Small Appliances Division $34,650,000 2,587,400 6,394,000 7,470,000 Cleaning Products Division $31,370,000 1,252,900 5,600,000 6,720,000 Forchen, Inc., requires an 8 percent minimum rate of return. Required: 1. Calculate residual income for the Small Appliances Division. $ 2. Calculate residual income for the Cleaning Products Division. $ 3. What if the minimum required rate of return was 9 percent? How would that affect the residual income of the two divisions? Small Appliances Division residual income would be Cleaning Products Division residual income would be • higher. • lower. • unaffected. • higher. • lower. • unaffected.
Transcribed Image Text:Calculating Residual Income Forchen, Inc., provided the following information for two of its divisions for last year: Sales Operating income Operating assets, January 1 Operating assets, December 31 Small Appliances Division $34,650,000 2,587,400 6,394,000 7,470,000 Cleaning Products Division $31,370,000 1,252,900 5,600,000 6,720,000 Forchen, Inc., requires an 8 percent minimum rate of return. Required: 1. Calculate residual income for the Small Appliances Division. $ 2. Calculate residual income for the Cleaning Products Division. $ 3. What if the minimum required rate of return was 9 percent? How would that affect the residual income of the two divisions? Small Appliances Division residual income would be Cleaning Products Division residual income would be • higher. • lower. • unaffected. • higher. • lower. • unaffected.
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