Use the Hamilton Company's investment center information below to calculate (a) return on total investment and (b) investment center residual income. Net Income…………………… $315,900Average Invested Assets……..$2,100,000Target Net Income…………… 6% of division assets
What will be an ideal response?
(a) Investment Center Return on Investment = Net Income/Average Invested Assets
$315,900/$2,100,000 = 15%
(b) Residual Income = Net Income/Target Income; $315,900 - $126,000* = $189,900
*Target Income = $2,100,000 * .06
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