The following data are for the Akron Division of Consolidated Rubber, Inc.: Sales $ 820,000 Net operating income $ 59,000 Average operating assets $ 320,000 Stockholders' equity $ 82,000 Residual income $ 22,000 For the past year, the minimum required rate of return was: Multiple Choice 44.00% 11.56% 23.10% 7.20%

Question

Business

Deven Cherry

29 December, 19:44

The following data are for the Akron Division of Consolidated Rubber, Inc.: Sales $ 820,000 Net operating income $ 59,000 Average operating assets $ 320,000 Stockholders' equity $ 82,000 Residual income $ 22,000 For the past year, the minimum required rate of return was: Multiple Choice 44.00% 11.56% 23.10% 7.20%

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Answers (1)

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Monserrat Randall · Answer 1

11.56%

Explanation:

The computation of the minimum required rate of return is shown below:

Residual income = Net operating income - (Average operating assets * minimum required rate of return)

$22,000 = $59,000 - ($320,000 * minimum required rate of return)

After solving this the minimum required rate of return is 11.56%

By applying the above formula we can find out the minimum required rate of return