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Exercise 12-11 Evaluating Investment Centers with Residual Income

Exercise 12-11 Evaluating Investment Centers with Residual Income
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ACCOUNTING

MT425 / MT 425
Managerial Finance and Accounting
Kaplan University (KU Campus)

James Jiambalvo
Managerial Accounting, 4e
Hoboken, NJ: John Wiley & Sons.

Unit 9: Decentralization and Performance Evaluation

Chapter 12 Exercise 12-11 Evaluating Investment Centers with Residual Income [LO 6] Lakeside Hospital is a division of Superior Healthcare organized as an investment center. In the past year, the hospital reported an after-tax income of $2,500,000. Total interest expense was $1,900,000, and the hospital’s tax rate was 35 percent. Hospital assets totaled $33,000,000, and noninterest-bearing current liabilities were $10,400,000. Superior has established a required rate of return equal to 17 percent of invested capital.

Required
Calculate the residual income/EVA of Lakeside Hospital.

 

FILE: MS WORD

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