The New Products Division of Testar Company Had Operating Income

question 71

Multiple Choice

The New Products Division of Testar Company had operating income of $8,000,000 and operating assets of $44,800,000 during the current year.The New Products Division has developed a potential new product that would require $8,500,000 in operating assets and would be expected to provide $1,400,000 in operating income each year.Testar has set a target return on investment (ROI) of 16% for each of its divisions.Assuming that the new product is put into production,calculate the residual income for the division.

• A) $832,000
• B) $872,000
• C) $528,000
• D) $672,000