The Basketball Division of Thunder Sports Enterprises reported the following financial data for the year: Assets available for use $1,200,000 Book Value $1,500,000 Market Value Residual income $108,000 Return on investment 14% Refer to Thunder Sports Enterprises. What was the target rate of return for Thunder Sports Enterprises?
a. 4%
b. 5%
c. 7%
d. 9%
B
Net Income - (Target Rate ? Asset Base) = Residual Income
$168,000 - (Target Rate ? $1,200,000) = $108,000
(Target Rate ? $1,200,000) = $60,000
Target Rate = 5.0%
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