Question: 1. Based on the following information, determine whether Vertically Integrated Manufacturing (VIM) earned any residual income for its shareholders: VIM had total assets of $3,000,000,

1. Based on the following information, determine whether Vertically Integrated Manufacturing (VIM) earned any residual income for its shareholders:

  • VIM had total assets of $3,000,000, financed with twice as much debt capital as equity capital.
  • VIMs pretax cost of debt is 6 percent, and cost of equity capital is 10 percent.
  • VIM had EBIT of $300,000 and was taxed at a rate of 40 percent.

Calculate residual income by using the method based on deducting an equity charge.

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