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Standard Media Has a Required Rate of Return of 5

question 135

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Standard Media has a required rate of return of 5 percent, a cost of capital of 4 percent, and an income tax rate of 30 percent. The following information about its two divisions has been provided by management:  Audio Division  Video Division  NOPAT $1,400,000$2,000,000 Sales $10,000,000$12,500,000 Invested capital $15,000,000$17,500,000\begin{array}{lrr}&\text { Audio Division }&\text { Video Division }\\\hline\text { NOPAT } & \$ 1,400,000 & \$ 2,000,000 \\\text { Sales } & \$ 10,000,000 & \$ 12,500,000 \\\text { Invested capital } & \$ 15,000,000 & \$ 17,500,000\end{array} How much is the residual income of the Audio Division?

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Definitions:

Authority Figure

An individual who holds power or control in a particular context, often able to influence others' actions or beliefs.

Obedience

The act of following the directives or commands of authorities or social norms, often studied in the context of how people can be influenced or controlled by others.

Milgram's Study

An influential experiment conducted by Stanley Milgram in the 1960s to investigate obedience to authority, demonstrating that people are willing to administer what they believe are painful electric shocks to another person when instructed by an authority figure.

Legitimate Power

A form of authority that is recognized and accepted by others due to the position or role held by an individual within an organization or society.

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