Residual Income = $23000 Operating income = 49,998 Cost of Capital = 12% What is return on investment?

Return on investment = 27.35 %

Explanation:

Below is the given information.

Residual Income = $23000

Operating income = 49,998

Cost of Capital = 12%

Now calculate the invested amount. Here, below is the calculation of the investment amount.

Invetment amount = (Operating income- Residual income) / Cost of capital

= (49998 - 23000) / 12%

= $ 224983

Now calculate the return on investment by using below formula.

The Return on investment = (operating income ÷ investment)×100

=(49998 / 224983) × 100

= 22.22 %

Return on investment = 27.35 %

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