=+20-27 KK Residual income and EVA®; timing issues OBJECTIVES 4, 5 Downtown Ltd makes taps. It has a weighted-average cost of capital of 8% and total assets of $6920000. Downtown Ltd has current liabilities of $950000. Its operating profit for the year was $880000. Downtown Ltd does not have to pay any income taxes. One of the expenses for accounting purposes was a $175000 advertising campaign. The entire amount was expensed this year, although Downtown’s CEO believes the beneficial effects of this advertising will last four years.

Required 1 Calculate residual income, assuming Downtown Ltd defines investment as total assets.