The following information has been collated for one of the divisions of Lade Co: Values at 30 November 2011:

Book Value ( ksh) Economic value (estimated) Kshs

Total assets (note 1) 1,738,674 2,869,522

Current liabilities 428,255 565,834

Non-current liabilities 727,815 828,944

Results for year to 30 November 2011: ( Ksh)

Profit before interest and tax 329,463

NOPAT 301,500

The company has a target rate of return of 13·5% per annum, and the weighted average cost of capital for the division is estimated to be 14·7% per annum. All borrowing is arranged centrally. An interest rate of 12·6% per annum applies to the most recently arranged loan.

Note 1: The book value of assets includes a receivables allowance of Kshs 17,890. The allowance has also been included in the calculation of the economic value of assets.

Required: For the year to 30 November 2011, calculate the divisional RI and the divisional EVA® and briefly comment on the results of your calculations.

Answer rating: 100% (QA)

To calculate the divisional Residual Income RI and Economic Value Added EVA for the year ending on November 30 2011 we need to use the following formulas RI NOPAT Capital Target Rate of Return EVA NOP... View the full answer