Felton co. produces rubber bands for commercial and home use. felton reported $8 million residual income (ri) with $25 million net book value (nbv) of assets and $13 million in operating income for the year. what was the required rate of return?

Residual income = Operating income - (r x Asset invested)

            $8 million = $13 million - (r x  25 million)

             $8 million = $13 million - r25 million              

              r25 million = $13 million - $8 million

              r25 million = $5 million

              r                 = $5 million/25 million

              r                 = 0.2 = 20%

            Thus, required rate of return is 20%

Explanation:

In this case, we need to apply the residual income formula. Operating income, asset invested and residual income have been given with the exception of rate of return. Thus, rate of return becomes the subject of the formula.

whole quiz

1. the sum of all activities involved in getting high-quality products into the marketplace

2.operations

3. the principle of looking at the supply chain as a whole in order to improve the overall flow through the system.

4. produced; performed

5. activities producing tangible products, such as radios, newspapers, buses, and textbooks.

6. activities producing intangible and tangible products, such as entertainment, transportation, and education.

7.   customer focus

8. analyzing a competitor's products to identify desirable improvements

9. the systematic direction and control of the processes that transform resources into finished projects that create value for and provide benefits to consumers.

10. operation management.

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