Practice Exercise 04 Minor & Neece, Ltd., operates retail clothing stores in Nashville, Knoxville, and Memphis, Tennessee. Each store is evaluated as an investment center. Selected results from the latest year are as follows Sales Variable expenses Direct fixed expenses Assets Required rate of return Weighted average cost of capital Tax rate Nashville Knoxville Memphis $5,037,000 $8,073,000 $2,016,000 2,080,000 4,894,000 1,015,000 808,000 4,000,000 5,000,000 1,600,000 14% 890 30% 2,080,000 2,480,000 14% 8% 30% 14% 8% 30% Calculate the residual income for each of the three stores. (If the residual income is a loss then enter with a negative sign preceding the number e.g 15,000 or parenthesis. e.g. (5,125).) Nashville Knoxville Memphis Residual income The corporate office is giving the stores the option of purchasing a new inventory management system. The new system will cost the stores $117,000; they can expect a $15,000 increase in their annual segment margins. Calculate the residual income using the new inventory system (If the residual income is a loss then enter with a negative sign preceding the number e.g.-15,000 or parenthesis. e.g. (5,125) Residual Income Nashville Knoxville Memphis If store managers are evaluated based on residual income, which stores will invest in the new inventory management system? LINK TO TEXT What is the EVA of the new inventory management system? EVA s