Using the Following Information, Calculate the Residual Profit

question 23

Multiple Choice

Using the following information, calculate the residual profit.
Sales $500 000
Profit 40 000
Average operating assets 180 000
Shareholders' equity 50 000
Minimum required rate of return 15%

• A) $13 000
• B) $25 000
• C) $16 000
• D) $15 000

---

Definitions:

Cost of Capital

The yield a corporation needs to generate from its investment initiatives to keep its market valuation steady and draw in financing.

Stand-Alone Project

In capital budgeting, a project with no competition either for the task it is to accomplish or for resources.

Cost of Capital

The rate of return a company must pay to its investors for the use of their capital, essentially the cost of financing and investing in the company's assets.

NPV

Net present value. A capital budgeting technique that rates projects according to the total present value of all their associated cash flows. The higher the total or net present value, the better.