1. Kristen Roper oversees her company\'s largest and most profitable investment

Question

1. Kristen Roper oversees her company's largest and most profitable investment center. She has asked you, as her staff accountant, to compute the center's ROI, residual income, and EVA for the month of August 2014, using the following information (rounded to two decimal places): August 2014 Pretax operating income $300,000 August 2014 sales 450,000

Assets at July 31, 2014 500,000

Assets at August 31, 2014 510,000

August 2014 income taxes 90,000

Current liabilities at August 31, 2014 250,000 Cost of capital 19%

Desired ROI

Explanation / Answer

operating income 300000

income tax 90000

NOPAT 210000 (net operating Profit After Tax)

capital employed = asset - current liabilites

510000 - 250000 = 260000 $

EVA = NOPAT - CAPITAL EMPLOYED * COST OF CAPITAL

   210000 - ( 260000 * 19 % )

EVA = 160600

ROI = PAT / CAPITAL EMPLOYED

   = (210000 / 260000) * 100 = 80.77%

FOR AUGEST = 80.77 / 12 = 6.73 %

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