Kevin Thomas Is the General Manager of the Modular Homes

question 57

Multiple Choice

Kevin Thomas is the general manager of the Modular Homes Division,and his performance is measured using the residual income method.Thomas is reviewing the following forecasted information for his division for next year: (CMA adapted)
$$\begin{array} { | l | r | } \hline \text { Category } & \begin{array} { r } \text { Amount } \\\text { (thousanos) }\end{array} \\\hline \text { Working capital } & \$ 1,800 \\\hline \text { Revenue } & 30,000 \\\hline \text { Plant and equipment } & 17,200 \\\hline\end{array}$$ If the cost of capital is 15% and Thomas wants to achieve a residual income target of $2,000,000,what will costs have to be in order to achieve the target?

• A) $9,000,000.
• B) $10,800,000.
• C) $25,150,000.
• D) $25,690,000.

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