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Foxmoor Corporation uses an imputed interest rate of 13% in the calculation of residual income. Division X, which is part of Foxmoor, had invested capital of $1,200,000 and an ROI of 16%. On the basis of this information, X's residual income was:

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Answer:

X's residual income was: $36,000

Explanation:

Division X, which is part of Foxmoor, had invested capital of $1,200,000 and an ROI of 16%. ROI is calculated by using following formula:

ROI = (Net Income/ Total Investment)x100%

Net income = (ROI x Total Investment)/100% = (16% x $1,200,000)/100% = $192,000

Foxmoor Corporation uses an imputed interest rate of 13% in the calculation of residual income.

X's residual income = Net income -  13% x $1,200,000 = $192,000 - $156,000 = $36,000