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How to Calculate Residual Income.
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How to Calculate Residual Income.

Rosemary Njeri

Residual income is income that a person continues to make after the work he has put into a project has been completed.

In corporate finance, residual income can be used as a measure of corporate performance.

Formula to calculate residual income.

Calculate Residual Income.

In most cases, the minimum required rate of return is equal to the cost of capital.

Example:

Suppose the net operating income of an investment center was $500,000 and operating assets of $2,500,000. The cost of capital is 12%. Calculate the residual income.

 Calculate Residual Income.

Thus, the residual income for the investment center was $ 200,000.

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