Poseidon Electronics operates ten stores in Washington, Oregon, and California selling consumer electronics including stereo equipment and home theater systems. The following financial information is available for 2009 and 2008.

Required
a. Although net income has increased by 7 percent, a shareholder evaluating the company's financial performance asserts that, in spite of the increase, financial performance has deteriorated in 2009. Support this assertion with appropriate calculations of EVA. Note that no adjustments are needed for "accounting distortions."
b. Management asserts that the increased investment in company's assets was clearly warranted since income increased. Briefly evaluate this assertion.
c. Briefly explain why evaluation in terms of EVA will drive managers to focus on carefully evaluating the investment in assets while this will not be the case if managers are evaluated in terms of growth in profit.

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Income from operations Net income Interest expense Total assets Noninterest-bearing current liabilities Tax rate Cost of capital 2009 $ 858,100 598,000 2008 $ 802,000 553,000 4,000 3,300,000 5,000 3,700,000 262,000 250,000 40% 40% 15% 15%