Assume that management has established a 9% minimum acceptable rate of return fo

Question

Assume that management has established a 9% minimum acceptable rate of return for invested assets.

a.  Determine the residual income for each division.

b.  Which division has the most residual income?

commercial division, internet divison, or retail divison

Retail Division Commercial Division Internet Division Income from operations: $90,000 $49,000 $85,000 Minimum amount of income from operations: $ $ $ Residual income: $ $ $ The income from operations and the amount of invested assets in each division of Steele Industries are as follows: Assume that management has established a 9% minimum acceptable rate of return for invested assets. Determine the residual income for each division. Which division has the most residual income?

Explanation / Answer

Income from operations ........................... $90,000 $49,000 $85,000 =

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Minimum amount of income from45,000 31,500 38,250

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Residual income ....................................... $45,000 $17,500 $46,750

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internet division

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