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Basic Question 5 of 5
The total asset value for ABC Corp. is $12 million, of which 40% is financed with equity while the remainder is financed with debt. The cost of equity is 8% and the tax rate is 40%. If the company reports a net income of $2.4 million, what is the best measure of the firm's residual income?
B. $1,440,000
C. $2,016,000
A. ($1,440,000)
B. $1,440,000
C. $2,016,000
User Contributed Comments 1
| User | Comment |
|---|---|
| samjhyip | There is no mention about the cost of debt here. So I guess that the default method to use would be the equity charge method? |
I am using your study notes and I know of at least 5 other friends of mine who used it and passed the exam last Dec. Keep up your great work!
Barnes
Learning Outcome Statements
calculate and interpret residual income, economic value added, and market value added;
CFA® 2025 Level II Curriculum, Volume 4, Module 24.