Sherwin Corporation has three business segments: paint, wallpapers, and tools. The company's assumed

cost of capital is 10%. Financial information about each segment follows.

Paint Segment Wallpaper Segment Tools Segment

	Paint Segment	Wallpaper Segment	Tools Segment
Segment operating income	$680,000	$480,000	$800,000
Invested capital	6,000,000	3,800,000	8,000,000

(a) Calculate residual income for each segment.

(b) Assuming a reduction in assumed cost of capital to 5%, prepare a revised analysis of residual

income. Does this revised assumption alter the rankings?

A.

4(a) Paint Residual income	$90,000
4(a) Wallpaper Residual income	$110,000
4(a) Tools Residual income	$10
4(b) Paint Residual income	$390,000
4(b) Wallpaper Residual income	$295,000
4(b) Tools Residual income	$403,000

B.

4(a) Paint Residual income	$80,000
4(a) Wallpaper Residual income	$100,000
4(a) Tools Residual income	$0
4(b) Paint Residual income	$380,000
4(b) Wallpaper Residual income	$290,000
4(b) Tools Residual income	$400,000

C.

4(a) Paint Residual income	$78,000
4(a) Wallpaper Residual income	$96,000
4(a) Tools Residual income	$30
4(b) Paint Residual income	$240,000
4(b) Wallpaper Residual income	$267,000
4(b) Tools Residual income	$360,000

D.

4(a) Paint Residual income	$88,000
4(a) Wallpaper Residual income	$106,000
4(a) Tools Residual income	$40
4(b) Paint Residual income	$260,000
4(b) Wallpaper Residual income	$160,000
4(b) Tools Residual income	$240,000

E.

4(a) Paint Residual income	$66,000
4(a) Wallpaper Residual income	$76,000
4(a) Tools Residual income	$70
4(b) Paint Residual income	$385,000
4(b) Wallpaper Residual income	$293,000
4(b) Tools Residual income	$409,000

F.

None of the above