The West Division of Frede Corporation Had Average Operating Assets

question 38

Multiple Choice

The West Division of Frede Corporation had average operating assets of $700,000 and net operating income of $120,800 in December. The minimum required rate of return for performance evaluation purposes is 16%. What was the West Division's residual income in December?

• A)$8,800
• B)($19,328)
• C)($8,800)
• D)$19,328

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Definitions:

Collateralized Debt Obligation

A complex structured finance product that pools together cash flow-generating assets and repackages them into tranches for sale to investors.

Credit Default Swap

A financial derivative or contract that allows an investor to "swap" or offset their credit risk with that of another investor.

Loan

A sum of money borrowed that is expected to be paid back with interest.

Asset Securitization

The process of pooling various types of contractual debt such as mortgages, and selling their related cash flows to third party investors as securities.