Problem:

Question 1) Explain why, in the calculation of EVA, the profit measure used (NOPAT) excludes interest expense.

Responsibility Centers A major software company has established customer service centers in India, Ireland, and Israel to provide support to its U.S. customers with foreign operations. The prices that the company charges for software reflect estimated costs in operating the centers (i.e., there is no separate charge for service).

For fiscal year 2015, Katherine's Department Store had net income of $6,000,000. Interest expense was $2,250,000, and the company's tax rate on income was 40 percent. Total assets were $80,000,000, and noninterest-bearing current liabilities were $6,700,000. The company's cost of capital (required rate of return) is 10 percent.

Required:

Question 1) Calculate NOPAT, invested capital, and residual income for Katherine's Department Store and comment on the company's profitability.

Major's Fitness Club operates a 20,000-square-foot facility in Dallas. For the coming year, the company is considering development of a balanced scorecard.

Required:

Question 2) Help the company by identifying three customer-focused measures that can be used on the balanced scorecard. Discuss the key items related to a successful balanced scorecard.

Provide correct solution of the given problem with step by step calculations.