2.7

The following information is available about the sales and operations of ABC for 2010. ABC uses a minimum required rate of return of 10% for all its divisions. The company has two divisions, A and B. Division A information Sales $100,000 Average operating assets $200,000 Net operating income $50,000 Cash $30,000 Division B information: Sales $1,000,000 Average operating assets $500,000 Net operating income $400,000 Cash $100,000 Residual Income for Division B is: a. $40,000 b. $50,000 c. $100,000 d. $350,000