The New Products Division of Testar Company, had operating income of $8,000,000 and operating assets of $44,800,000 during the current year. The New Products Division has developed a potential new product that would require $8,500,000 in operating assets and would be expected to provide $1,400,000 in operating income each year. Testar has set a target return on investment (ROI) of 16% for each of its divisions. Assuming that the new product is put into production, calculate the residual income for the division.

Multiple Choice

• $832,000

• $872,000

• $528,000

• $672,000