Residual Income Is the

question 11

Multiple Choice

Residual income is the

• A)contribution margin of an investment center,less the imputed interest on the invested capital used by the center.
• B)contribution margin of an investment center,plus the imputed interest on the invested capital used by the center.
• C)income of an investment center,less the imputed interest on the invested capital used by the center.
• D)income of an investment center,plus the imputed interest on the invested capital used by the center.

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Definitions:

Preferred Stock

A class of ownership in a corporation that has a higher claim on its assets and earnings than common stock, usually with fixed dividends.

After-Tax Cost of Debt

The interest expense on debt adjusted for taxes, showing the actual cost of debt financing after considering the tax shield.

WACC

Weighted Average Cost of Capital; a calculation of a firm's cost of capital in which each category of capital is proportionately weighted.

Component Cost of Debt

The effective rate that a company pays on its current debt, incorporating tax effects.