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djnextlevel djnextlevel
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A month ago
Major Corporation operates a wholesale electrical supply company with two locations. Each location is evaluated as an investment center. Selected results from the latest year are as follows:

​​Location #1Location #2
Sales$600,000$800,000
Variable expenses460,000660,000
Direct fixed expenses100,00080,000
Average assets890,000780,000
Current liabilities120,000180,000
Required rate of return10%12%
Weighted average cost of capital8%6%
Tax rate24%28%

Required:

a.Calculate the residual income for Location #1.
b.Calculate the EVA for Location #2.
Textbook 
Managerial Accounting

Managerial Accounting


Edition: 4th
Author:
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jmoline2jmoline2
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A month ago
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More solutions for this book are available here
a.Operating income = $600,000 - $460,000 - $100,000 = $40,000
Residual income = $40,000 - ($890,000 × 10%) = ($49,000)
b.Net operating profit = $800,000 - $660,000 - $80,000 = $60,000 - $16,800 = $43,200
EVA = $43,200 - [($780,000 - $180,000) × 6%] = $7,200
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djnextlevel Author
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A month ago
Thanks
Helpmeplease11
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Yesterday
Helped a lot
emilyas19
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2 hours ago
this is exactly what I needed
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