Question #5

Reading: Reading 23 Residual Income Valuation

PDF File: Reading 23 Residual Income Valuation.pdf

Page: 4

Status: Unattempted

Correct Answer: A

Part of Context Group: Q5-8 First in Group
Shared Context
- Calculate Retty's EVA® for 20x6 based on end-of-year invested capital. (Ignore the potential problem created by the write-off of goodwill.) A) $1.3 million negative. B) $1.2 million negative. C) $1.6 million positive.
Question
Calculate Retty's residual income for 20x6.
Answer Choices:
A. –$0.3 million
B. $0.7 million
C. $2.5 million
Explanation
Residual income = accounting profit (after tax and interest) minus a charge for equity capital employed. Net income for 2x06 12.5 Beg stockholders' equity 85.2 Charge at cost of equity, 15% (12.8) Hence residual income (0.3)
Actions
Practice Flashcards