The following information pertains to Kaizen Image Inc. for the year ended December 31, 2019 Kaizen Image
Question:
The following information pertains to Kaizen Image Inc. for the year ended December 31, 2019
Kaizen Image Inc.
Consolidated Balance Sheet
December 31, 2019
Assets
Current assets
Cash $ 210,000
Receivables 195,000
Inventories 380,000
785,000
Net property, plant and equipment 1,100,000
Goodwill 450,000
Total assets $2,335,000
Liabilities
Current liabilities
Payables $ 580,000
Long-term debt 800,000
Total liabilities $1,380,000
Shareholders’ Equity
Common shares 705,000
Retained earnings 250,000
Total liabilities and shareholders’ equity $2,335,000
Operating income before taxes 2019 $ 160,000
Impairment loss of goodwill included in the calculation of income 2,800
Development cost in 2019 expensed 8,200
Research costs in 2019 expensed 12,600
Additional information
1. The marginal tax rate is 40%.
2. The cost of equity is 9%.
3. The market yield on equivalent debt is 4%.
4. Assume that all research and development costs were incurred on January 1.
5. Assume that the fair values of debt and equity are same to the accounting values.
6. Capitalized costs are amortized over a period of 6 years.
Required:
a) Determine the economic value added (EVA) for the year December 31, 2019.
b) Explain the meaning and significance of your answer to part (a). Identify and briefly explain the major differences, if any, between EVA income and GAAP income.
c) Briefly explain the difference between return on investment, residual income, and EVA (no computation is necessary).
d) Indicate how EVA and residual income would be incorporated in a balanced scorecard (BSC). Briefly explain whether this incorporation would be useful.
Expert Answer:
Required a Determine the economic value added EVA for the year December 31 2019 ANSWER EVA NOPAT WACC Capital NOPAT Operating income before taxes Taxe... View the full answer
Principles of Managerial Finance
ISBN: 978-0133507690
14th edition
Authors: Lawrence J. Gitman, Chad J. Zutter
