Subway Sandwiches operates a fast-casual sandwich chain in California. The company's first location, SFO, was opened in 2018. The Sanjose and LA locations followed suit in 2019. Operations are heavily decentralized and store managers are evaluated on their return on investment (ROI) with corporate expecting them to achieve at least a 20% ROI. (As explained below, Subway calculates ROI as the controllable margin of the store in a period divided by the total assets at the end of the period.) The company is considering changing its performance evaluation system to an EVA approach. Data for 2021 is provided below:

	Sanjose	SFO	LA	Total
Revenues	$3,683,000	$4,150,000	$3,130,000	$10,963,000
Variable Food Costs	$1,415,504	$1,611,000	$1,264,000	$4,290,504
Gross Profit	2,267,496	2,539,000	1,866,000	6,672,496
Variable Labor Costs	$991,200	$913,000	$688,600	$2,592,800
Variable Advertising (5% of Revenues)	$165,735	$186,750	$140,850	$493,335
Manager Salary	$100,000	$120,000	$132,000	$352,000
Controllable Expenses	1,256,935	1,219,750	961,450	3,438,135
Controllable Margin	1,010,561	1,319,250	904,550	3,234,361
Rent	$350,000	$380,000	$360,000	$1,090,000
General Admin	$500,350	$629,500	$323,900	$1,453,750
Corporate Overhead	$0	$0	$0	$175,000
Total Non-Controllable Expenses	850,350	1,009,500	683,900	2,718,750
Operating Profit	160,211	309,750	220,650	515,611
Interest				270,000
Taxes				49,122
Net income				196,489
Net book value at 2021 year-end:
Current assets	$970,000	$850,000	$600,000	2,420,000
Long-term assets	3,675,000	4,802,000	3,205,000	11,682,000
Total assets	4,645,000	5,652,000	3,805,000	14,102,000
Current liabilities (non-interest bearing)	330,000	265,000	184,000	779,000
Long-term debt	-	-	-	4,500,000
Stockholders' equity				8,823,000
Total liabilities and equity				14,102,000
Weighted average cost of capital (WACC)				8%

The company currently borrows at 6% per year on its long-term debt and pays a 20% tax rate on income.

Subwaybelieves advertising provides benefits over 4 years and therefore for EVA purposes should be amortized on a straight-line basis over a 4-year useful life (beginning with the year of the expenditure). Similarly, the organization prioritizes training and expects the benefits to persist over a 3-year useful life. Advertising and training expenses incurred in the years 2018 through 2021 are as shown below:

	2018	2019	2020	2021
GAAP Advertising Expense	$ 220,100	$ 392,500	$ 455,105	$493,335
Training Costs	$101,200	$103,540	$119,843	$129,640

a) Calculate 2021 EVA for Subways Sandwiches. Calculate the 2021 Income statement and Balance Sheet adjustments related to advertising and training expenses. Clearly show and label the income effect (i.e., the net adjustment to NOPAT) and the balance sheet effect (i.e., the adjustment to invested capital) show analysis

b) Subways is considering a capital investment to upgrade the kitchen layout and install cold rooms in all three locations. The upgrades are expected to cost $840,000.The resulting annual cost savings is expected to increase operating profit by $120,000. Should SubwaysThe weighted go ahead with the investment if performance evaluation is based on EVA? Show your analysis