Problem: Saba Signs Company has provided the following data:
|
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.
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).