Standard Media Has a Required Rate of Return of 5

question 104

Multiple Choice

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: $\begin{array}{lrr}&\text { Audio Division}&\text { Video Division }\\\text { NOPAT } & \$ 1,400,000 & \$ 2,000,000 \\\text { Sales } & \$ 10,000,000 & \$ 12,500,000 \\\text { Invested capital } & \$ 15,000,000 & \$ 17,500,000\end{array}$ How much is the residual income of the Audio Division?

• A)$600,000
• B)$650,000
• C)$800,000
• D)$2,000,000

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Definitions:

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