Practice problem $2.$ Residual Income $($RI$)$

Amount that operating income exceeds a minimum acceptable

income

To find minimum acceptable income, multiply division's invested

assets by required rate of return

$RI=$ Operating income $-($Invested assets $$ RRR$)$

At a $15\%$ required rate of return:

RI for Division $A=$

RI for Division $B=$

Interpretation?

Residential Division of Drippy Faucets last year

Practice problem $3.$

Net sales $$4,160,000$

Operating income $$1,040,000$

Average total assets $$5,200,000$

Required rate of return $,18\%$

Profit margin ratio $=$

Interpretation:

Asset turnover ratio$=$

Interpretation:

$,$ROI$=$

Interpretation:

$RI=$

Interpretation: