Poseidon Electronics operates 10 stores in Washington, Oregon, and California, selling consumer electronics including stereo equipment and home theater systems. The following financial information is available for 2018 and 2017:

Required
a. Although net income has increased by 6 percent, a shareholder evaluating the company's financial performance asserts that, in spite of the increase, financial performance has deteriorated in 2018. Support this assertion with appropriate calculations of EVA. Note that no adjustments are needed for accounting distortions.
b. Management asserts that the increased investment in the company's assets was clearly warranted since income increased. Briefly evaluate this assertion.
c. Briefly explain why evaluation in terms of EVA will drive managers to focus on carefully evaluating the investment in assets while this will not be the case if managers are evaluated in terms of growth in profit.

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2018 2017 Income from operations Net income Interest expense Total assets Noninterest-bearing current liabilities Tax rate Cost of capital $ 990,000 $ 935,000 6,600 4,400,000 319,000 40% 12% 5,500 3,850,000 308,000 40% 12%