Residual Income

The operating income and the amount of invested assets in each division of Otte Industries are as follows:

	Operating Income		Invested Assets
Retail Division	$100,700		$530,000
Commercial Division	113,900		670,000
Internet Division	75,900		330,000

Assume that management has established a 12% minimum acceptable rate of return for invested assets.

a. Determine the residual income for each division.

	Retail Division	Commercial Division	Internet Division
Operating income	$100,700	$113,900	$75,900
Minimum acceptable operating income as a percent of invested assets
Residual income	$	$	$

b. Which division has the most residual income? Retail Division

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a. Subtract the minimum acceptable income from operating income.

b. Compare the results for the divisions.