Residual Income and Economic Value Added Flashcards
1
Q
Residual Income
A
Net Income (from income statement) minus Required Return (in dollars on equity)
2
Q
Required Return for Residual Income
A
Net Book Value (Equity) X Hurdle Rate (Set by management which is usually CAPM)
3
Q
Net Book Value
A
Asset minus Liabilities = Equity ($)
4
Q
Economic Value Added
A
Net Operating Profit after taxes (NOPAT) minus Required Return ($WACC)
5
Q
Net Operating Profit after Tax
A
Profit before interest but after tax
EBIT X (1 - Tax Rate)
6
Q
Required Return (in dollars) for Economic Value Added
A
Investment X Cost of Capital
7
Q
Investment
A
Debt + Equity
