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the new products division of testar company, had operating income of $9,100,000 and operating assets of $45,900,000 during the current year. the new products division has developed a potential new product that would require $9,600,000 in operating assets and would be expected to provide $2,500,000 in operating income each year. testar has set a target return on investment (roi) of 20% for each of its divisions. assuming that the new product is put into production, calculate the residual income for the division.

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tutorconsortium117

Following is a calculation of residual income: But first, we must identify the operating assets, which are represented below:

The computation of the residual income is shown below:

Given:

= Total operating assets  × target rate of return

Operating income = ($45,900,000 + $9,100,000 ) × 16%

Operating assets = $8,800,000

And, the operating income is

Additional operating assets + Additional operating income

Target return on investment (ROI)

Computation:

= $9,600,000 + $2,500,000

= $12,100,000

So, the residual income is

= Operating income - operating assets

= $8,800,000 - $12,100,000

= $3,300,000

Residual income for the division = $3,300,000

To learn more about income calculation refer to

https://brainly.com/question/22739980

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