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Forchen, Inc., provided the following information for two of its divisions for last year: Small Appliances Division Cleaning Products Division Sales $34,600,000 $31,350,000 Operating income
Forchen, Inc., provided the following information for two of its divisions for last year:
Small Appliances Division | Cleaning Products Division | |
Sales | $34,600,000 | $31,350,000 |
Operating income | 2,762,000 | 1,252,200 |
Operating assets, January 1 | 6,396,000 | 5,700,000 |
Operating assets, December 31 | 7,530,000 | 6,250,000 |
Forchen, Inc., requires an 8 percent minimum rate of return.
Required:
1. Calculate residual income for the Small Appliances Division.
$
2. Calculate residual income for the Cleaning Products Division.
$
3. What if the minimum required rate of return was 9 percent? How would that affect the residual income of the two divisions?
Small Appliances Division residual income would be: lower, higher, or unaffected | |
Cleaning Products Division residual income would be: lower, higher or unaffected |
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