Posted: July 9th, 2016

What is the company residual income?

Long Beach Pharmaceutical Company has two divisions, which reported the following results for the most recent year.

Division I Division II
Income $ 900,000 $ 200,000
Average invested capital $ 6,000,000 $ 1,000,000
ROI 15 % 20 %

Required:
1. Compute each division’s residual income for the year under each of the following assumptions about the firm’s cost of acquiring capital. (Negative amounts should be indicated by a minus sign. Leave no cells blank – be certain to enter “0” wherever required. Omit the “$” sign in your response.)

Division I Division II
Residual income at 12% $ $
Residual income at 15% $ $
Residual income at 18% $ $
Inputed interest rate is 14%

The following data pertain to three divisions of Nevada Aggregates, Inc. The company’s required rate of return on invested capital is 8 percent. (Round “Capital turnover” to 1 decimal place. Omit the “$” & “%” signs in your response.)

Division A Division B Division C
Sales revenue $ $ 10,000,000 $
Income $ 400,000 $ 2,000,000 $
Average investment $ $ 2,500,000 $
Sales margin 20 % % 25 %
Capital turnover 1
ROI % % 20 %
Residual income $ $ $ 120,000