Sterling, inc. reports the following financial information for its sports clothing segment. average operating assets $3,064,000 controllable margin $643,440 minimum rate of return 7 % compute the return on investment and the residual income.

Return on investment = 21%

Residual Income = $428,960

Explanation:

Average operating assets (AOA) = $3,064,000

Controllable margin (CM) = $643,440

Minimum rate of return (MRR) = 7 %

The return on investment is the ratio between the controllable margin (CM) and the average operating assets (AOA):

The residual income is given by:

Residual Income = CM - (MRR × AOA)

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