Simplify the Numerator, and Then Divide

question 237

Short Answer

Simplify the numerator, and then divide.

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Definitions:

Residual Income

The amount of income that exceeds the minimum rate of return expected from a particular investment. It is often used as a measure of the performance of an investment or a division within a company.

Weighted Average Cost Of Capital

The average rate of return a company is expected to pay to its security holders, weighted by the proportion of each type of capital in the overall capital structure.

Economic Value Added

A measure of a company's financial performance based on the residual wealth calculated by deducting its cost of capital from its operating profit.

Return On Investment

A measure used to evaluate the efficiency of an investment, calculated as net profit divided by the cost of the investment.