Question

The Tipton Division of Dudley Company reported the following data last year: Return on investment 20 % Minimum required rate of return 12 % Residual income $ 50,000 Tipton Division's average operating assets last year were: Multiple Choice A. $625,000 B. $250,000 C. $416,677 D. $333,333.

Answer 1

Answer:

A. $625,000

Explanation:

We know that,

Residual income = Average operating assets × (Return on investment  - Minimum Required Rate of Return)

$50,000 = Average operating assets × (20% - 12%)

$50,000 = Average operating assets × 8%

So, the average operating assets would be

= $50,000 ÷ 8%

= $625,000

We simply apply the formula by considering all the items which are given in the question