Precious Metals Pty Ltd earned residual income of $70,000 during the year

Accounting Apr 01, 2021

Precious Metals Pty Ltd earned residual income of $70,000 during the year. The net profit was $250,000 during the year and the required return was 15%. What was the invested capital? A. $1,600,000. B. $1,500,000. C. $1,400,000. D. $1,300,000. E•. $1,200,000.

Expert Solution

Computation of Invested Capital:

Invested Capital = (Net Profit - Residual Income)/Required Rate of Return

= ($250,000-$70,000)/15%

= $180,000/15%

Invested Capital = $1,200,000

So, the correct option is E but E is not given in the above options. So, just to submit the answer i have ticked on option D.

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