Formulae for Residual income valuation Residual income (RI) = Net income equity charge Residual income (RI)=

= Net income (equity capital X cost of equity) Economic Value Added (EVA) = NOPAT (WACC X invested capital) Where NOPAT = Net operating profit after tax WACC = weighted average cost of capital Economic Value Added (EVA) = EBIT(1-t) - $WACC Where EBIT = Earnings before interest and tax $ WACC = dollar cost of capital RIt = Et (r X Bt-1) Where Et = earnings in year t Bt-1 = book value of equity in year t-1 RIt =( ROE-r) X Bt-1 V0 = B0 + {Bo X (ROE-r)/(r-g)} Tobins Q = (MV of debt + MV of equity) / replacement cost of total assets