The residual income is $576,000.
Net Operating Income = $720,000
Cost of Operating Assets = $1,800,000.
Minimum Required Return = 8%
Residual income is the income that is earned after the manufacturing job has been completed. Only a few examples of residual income include royalties, interest and dividend income, rental and real estate revenue, and sales of consumer goods.
Using the formula of residual income -
RI = Net Operating Income − Minimum Required Return × Cost of Operating Assets
RI = NOI - MRR × COA
Substituting the values -
RI = 7,20,000 - 1,800,000 × 8%
= 7,20,000 - 1,800,000 × 8/100
= 7,20,000 - 1,44,000
= 576,000.
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