Economic Value Added (EVA): Economic Value Added is a measure of evaluation of profitability of the company. It is actually the difference between the income earned and the desired or required income on the investment in the business. Residual Income (RI): Residual Income is the income earned over and above the expected rate of return on assets invested in the business. The formulas to calculate the Residual Income is as follows: R e s i d u a l I n c o m e = O p e r a t i n g I n c o m e – ( A v e r a g e a s s e t s × R e q u i r e d r a t e o r R e t u r n ) To indicate: The difference of EVA and Residual income.

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Chapter 10, Problem 13Q

To determine

Concept introduction:

Economic Value Added (EVA):

Economic Value Added is a measure of evaluation of profitability of the company. It is actually the difference between the income earned and the desired or required income on the investment in the business.

Residual Income (RI):

Residual Income is the income earned over and above the expected rate of return on assets invested in the business. The formulas to calculate the Residual Income is as follows:

Residual Income = Operating Income – (Average assets ×Required rate or Return)

To indicate:

The difference of EVA and Residual income.

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