Equities: Residual Income instead

CFA4Techie

Question #5 page 617:

NOPAT - (WACC x Invested Capital)
vs.
EPS - (r x BV)

Why do they use the above formula instead of the lower one?

OmarAdnan

I think that is the forumula for MVA where you are considering debt as well

onelife1

You can use either formula for that question. They gave you all all of the necessary inputs to compute RI both ways. Just take out your after tax cost of interest from NOPAT to get NI: 10MM - 9%(1-t)*50MM = 7.3MM - (.12*50MM) = 1.3MM RI