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Residual income

This topic has 1 reply, 2 voices, and was last updated 9 years ago by John Moffat.

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March 26, 2015 at 11:41 pm #239040
Shanda
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A company has capital employed of $500,000. It has a cost of capital of 15% per year and a return on investment of 17% per year. What is the company’s residual income?
Can I see the calculation please?
March 27, 2015 at 8:41 am #239075
John Moffat
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The ROI is 17%, so the profit is 17% x 500,000 = 85,000.
The cost of capital is 15%, so the RI = 85,000 – (15% x 500,000)
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