Question

Pankey Inc. has a $700,000 investment opportunity that would involve sales of $1,050,000, a contribution margin ratio of 40% of sales, and fixed expenses of $325,500. The company’s minimum required rate of return is 18%. The residual income for this year's investment opportunity is closest to:
Multiple Choice
$126,000
$0
($31,500)
$94,500

Answer 1

The approximate residual income for the investment opportunity for this year is: ($31,500). The money that still comes in after an initial time and resource commitment has been made is known as residual revenue.

Artist royalties, rental income, interest income, and dividend payments are a few types of residual revenue. Other usages of the phrase "residual income" include: Residual income in personal finance can refer to a person's discretionary income or the entire sum of money left over after meeting all personal commitments and debts. In corporate finance, residual income is a metric for evaluating a company's performance that captures all revenue received after all pertinent capital expenses have been covered. In general, residual income is a measurement of tangential profits made after deducting all capital expenses used to get such revenue. The phrases economic value-added, economic profit, and anomalous earnings are further terminology for residual income.

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