Which of the Following Formulas Computes Residual Income

question 27

Multiple Choice

Which of the following formulas computes residual income?

• A) Residual Income = Operating Income − Return on Investment
• B) Residual Income = Operating Income / Average Operating Assets
• C) Residual Income = After-tax Operating Income / (Actual Percentage Cost of Capital × Total Capital Employed)
• D) Residual Income = Operating Income − (Minimum Rate of Return × Average Operating Assets)
• E) Residual Income = (Minimum Rate of Return × Average Operating Assets) / Operating Income