Use the Information Below to Answer the Following Question(s)

question 124

Multiple Choice

Use the information below to answer the following question(s) :
The Beverage Division of Natural Foods Corporation had sales of $4,200,000 and operating income of $840,000 last year. The total assets of the Beverage Division were $1,680,000, while current liabilities were $360,000. Natural Foods Corporation's target rate of return is 9%, while its weighted average cost of capital is 7%. The effective tax rate for the company is 40%.
-What is the Beverage Division's Residual Income (RI) ?

• A) $722,400
• B) $688,800
• C) $411,600
• D) $151,200

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Definitions:

Concentration Ratio

A measure used to assess the market share controlled by the top firms in an industry, indicative of market competitiveness or dominance.

Inverted-U Theory

A hypothesis that suggests a relationship between a particular factor and an outcome starts positively at lower levels, peaks, and then turns negative as the factor increases further.

Technologically Progressive

Characterized by advances in technology which contribute to improved efficiency and productivity.

R&D Spending

Financial investments allocated towards research and development activities with the aim of advancing innovation, creating new products, or improving existing ones.