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Consider the following information for Executive Electronics: Required a. Evaluate

Consider the following information for Executive Electronics: Required a. Evaluate the companys performance for 2020 and 2021

Question:

Consider the following information for Executive Electronics:

12/31/2020 12/31/2021 Total assets $12,650,000 $12,100,000 Noninterest-bearing current liabilities Net income Interest expense 550,000 572,000 770,000 880,000 2,310,000 330,000 Tax rate 20% 20% Required rate of return 10% 12%

Required

a. Evaluate the company’s performance for 2020 and 2021 in terms of residual income (RI), which is equivalent to EVA since there are no adjustments for accounting distortions.

b. While income has increased in fiscal 2021, is it clear that the company’s performance has improved?

c. (Optional) Explain why the required rate of return increased in fiscal 2021.

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12/31/2020 12/31/2021 Total assets $12,650,000 $12,100,000 Noninterest-bearing current liabilities Net income Interest expense 550,000 572,000 770,000 880,000 2,310,000 330,000 Tax rate 20% 20% Required rate of return 10% 12%

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a 2020 2021 Net income 770000 880000 Plus interest 2310000 330000 Less tax effect of interest 462000 ...View the full answer

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Question Posted: Jun 24, 2020 01:16 AM

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Consider the following information for Executive Electronics: Required a. Evaluate the companys performance for 2020 and 2021

Question:

12/31/2020 12/31/2021 Total assets $12,650,000 $12,100,000 Noninterest-bearing current liabilities Net income Interest expense 550,000 572,000 770,000 880,000 2,310,000 330,000 Tax rate 20% 20% Required rate of return 10% 12%

Step by Step Answer:

a 2020 2021 Net income 770000 880000 Plus interest 2310000 330000 Less tax effect of interest 462000 ...View the full answer

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