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Calculate the residual income of ntp

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Reference no: EM132944630

New Trading Products (NTP) makes use of considerable debt in its capital structure. For the year 2008, 85% of the company's total assets of R450 000 000 were financed with debt capital. The cost of debt before tax is 7.6% and the cost of equity capital is 12.5%. NTP's pre-tax income in 2008 was R4.9 million and they have a tax rate of 42%.

Problem 1: Calculate the residual income of NTP for 2008.

A. R8 437 500
B. R2 842 000
C. -R5 595 500

Reference no: EM132944630

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