Problem
Residual Income The income from operations and the amount of invested assets in each division of Devon Industries are as follows: Income from Operations Invested Assets Sporting Goods Division $95,000 500,000 Health Care Division 160,600 730,000 Commercial Division 89,700 390,000 Assume that management has established a 8% minimum acceptable rate of return for invested assets.
a. Determine the residual income for each division. Sporting Goods Division Health Care Division Commercial Division Income from operations $95,000 $160,600 $89,700 Minimum amount of income from operations Residual income.
b. Which division has the most residual income?