Residual Income
Washington Company has two divisions: the Adams Division and the Jefferson Division. The following information pertains to last year's results:
| |
Adams Division |
Jefferson Division |
| Net (after-tax) income |
$ 605,000 |
|
$ 315,000 |
|
| Total capital employed |
4,000,000 |
|
3,250,000 |
|
In addition, Washington Company's top management has set a minimum acceptable rate of return equal to 8%.
Required:
1. Calculate the residual income for the Adams Division.
2. Calculate the residual income for the Jefferson Division.