Answer and Explanation:
The computation is shown below:
1. Return on investment
As we know that
Return on investment = Operating income ÷ Average total assets
Particulars Soap Products Skin Lotions Hair products
Return on investment 5.41% 8.32% 9.08%
($3,244,000 ÷ $59,994,000) ($2,744,000 ÷ $32,994,000) ($4,994,000 ÷ $54,994,000)
2. Residual income
Residual income = Operating income - (Average total assets × Minimum desired rate of return)
Particulars Soap Products Skin Lotions Hair products
Return on investment $244,300 $1,094,300 $22,443,000
{$3,244,000 - ($59,994,000 × 5%)} {$2,744,000 - ($32,994,000 × 5%)} {$4,994,000 - ($54,994,000 × 5%)}
3. EVA
EVA = Operating income - (Average total assets × Cost of capital)
Particulars Soap Products Skin Lotions Hair products
Return on investment $844,240 $1,424,240 $2,794,240
{$3,244,000 - ($59,994,000 × 4%)} {$2,744,000 - ($32,994,000 × 4%)} {$4,994,000 - ($54,994,000 × 4%)}
