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The following information is available for Viva Co
The following information is available for Viva Co. for the month of June:
$450,000 $8,000 $500,000
Sales
Net profit
Total assets
Stockholder's equity $200,000
Cost of capital 6%
Calculate the ROI and residual income.
Expert Solution
ROI = Net Profit/ Total assets
= 8000/500,000
=1.60%
Residual Income = Operating Income - (desired Rate of Return x Investment in OA)
= 8000 -(6% x 500,000)
= $(22,000)
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