Solutions to review questions 19.1 The DuPont method highlights that ROI is increased by any action that increases investment turnover or income margin. ROI increases with 1 increases in revenues, 2 decreases in costs orb decreases in investments, while holding the other two factors constant. 19.2 Yes. Residual income is not identical to ROI. ROI is a percentage with investment as the denominator of the calculation. Residual income is an absolute amount in which investment is used to calculate an imputed interest charge. 19.3 Economic value added (EVA) is a specific type of residual income measure that is calculated as follows Economic value added (EVA) = After-tax operating income – Weighted-average cost of capital Total assets minus current liabilities 19.4 Definitions of investment used in practice when computing ROI are
