Calculating Residual Income

Residual income models (RIM) are a way to estimate a company's intrinsic value based on the concept of economic profit. This approach considers the company's book value of equity and the required return on equity to determine if there is any excess income generated beyond what is expected. If a company is expected to earn more than its required rate of return on equity, it contributes positive residual income.

Suppose a company has a book value of equity of $1,000,000, a required return on equity of 10%, and is expected to generate an operating income of $150,000 next year. What is the residual income generated by the company for that year?