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Residual income and EVA

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Saba Signs Company has provided the following data:

The company requires a residual income of 6%.

Required:
a) Determine the residual income before and after the additional investment.
b) Will the company accept the proposed additional investment if the management is evaluated by residual income?
c) Determine the company's Economic Value Added (EVA).

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Item End of the year Amount Proposed addition
Sales \$2,400,000 600,000
Investment \$4,800,000 1,,800,000
Profit \$384,000 \$108,000

The company requires a residual income of 6%.

Required:
a) Determine the residual income before and after the additional investment.

Residual income = ...

Solution Summary

The solution explains how to calculate residual income and EVA.

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