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Question(s) / Instruction(s):

 Assume Division 1 of the XYZ Company had the following results last year (in thousands). Management’s required rate of return is 8%, and the weighted average cost of capital is 6%. Its effective tax rate is 30%.

Sales                               $5,000,000

Operating income            $1,000,000

Total assets                      $10,000,000

Current liabilities              $500,000

What is the division’s residual income?

A             $100,000

B             $200,000

C             $500,000

D             $800,000

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