Normandy Instruments invests heavily in research and development (R&D), although it must currently treat its R&D expenditures asexpenses for financial accounting purposes. To encourage investment in R&D, Normandy evaluates its division managers using EVAThe company adjusts accounting income for R&D expenditures by assuming these expenditures create assets with a two-year life.That is, the R&D expenditures are capitalized and then amortized over two years.Aerospace Division of Normandy shows after-tax income of $18.013 million for year 2. R&D expenditures in year 1 amounted to $7.213million and in year 2, R&D expenditures were $12.013 million. For purposes of computing EVA, Normandy assumes all R&Dexpenditures are made uniformly over the year. Before adjusting for R&D, Aerospace Division shows assets of $72.013 million at thebeginning of year 2 and current liabilities of $1,513,000. Normandy computes EVA using divisional investment at the beginning of theyear and a 12 percent cost of capital.Required:Compute EVA for Aerospace Division for year 2.Note: Enter your answers in dollars, not in millions.Adjusted divisional incomeCost of adjusted divisional investmentEconomic value added (EVA)$$207411

A divisional income statement is the analysis of the financial performance of a large business for…

Answered: Normandy Instruments invests heavily in…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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A division is considering the acquisition of a new asset that will cost $730,000 and have a cash flow of $281,000 per year for each of the four years of its life. Depreciation is computed on a straight-line basis with no salvage value. Ignore taxes. a. What is the ROI for each year of the asset's life if the division uses beginning-of-year asset balances and net book value for the computation?
The Street Division of Labrosse Logistics just started operations. It purchased depreciable assets costing $36.9 million and having a four-year expected life, after which the assets can be salvaged for $7.38 million. In addition, the division has $36.9 million in assets that are not depreciable. After four years, the division will have $36.9 million available from these nondepreciable assets. This means that the division has invested $73.8 million in assets with a salvage value of $44.28 million. Annual operating cash flows are $12.9 million. In computing ROI, this division uses end-of-year asset values in the denominator. Depreciation is computed on a straight-line basis, recognizing the salvage values noted. Ignore taxes. In computing ROI, this division uses end-of-year asset values. Assume that all cash flows increase 10 percent at the end of each year. This has the following effect on the assets’ replacement cost and annual cash flows: End of Year Replacement Cost Annual Cash…
(Divisional costs of capital and investment decisions) In May of this year, Newcastle Mfg. Company's capital investment review committee received two major investment proposals. One of the proposals was put forth by the firm's domestic manufacturing division, and the other came from the firm's distribution company. Both proposals promise a return on invested capital to approximately 11 percent. In the past, Newcastle has used a single firm-wide cost of capital to evaluate new investments. However, managers have long recognized that the manufacturing division is significantly more risky than the distribution division. In fact, comparable firms in the manufacturing division have equity betas of about 1.6, whereas distribution companies typically have equity betas of only 1.1. Given the size of the two proposals, Newcastle's management feels it can undertake only one, so it wants to be sure that it is taking on the more promising investment. Given the importance of getting the cost of…
Accounting Question
Lululemon wants to enter the electric car business. To enter the business, Lululemon will need to make an initial investment of $100 million into purchases of production facilities and equipment. The production facilities and equipment are expected to have a ten-year life and will be depreciated on a straight-line basis over that period, so that the book value of the production facilities and equipment equals zero at the end of year ten. Lululemon plans to operate the business only for six years, after which Lululemon plans to sell its production facilities and equipment for $60 million. For the six years that Lululemon expects to operate in the electric car business,Lululemon expects to generate cash revenues of $140 million in the first year, which Lululemon expects to grow at a rate of 5% each year after the first year. The cash operating costs of running the electric car business, excluding depreciation expenses, are expected to be 35% of revenues. Lululemon expects an increase in…
Any one of these different product lines can be produced by Bubble Mills, Inc., with the present equipment in one of the divisions. The annual depreciation of the equipment is P6,400; and the annual cost to operate the equipment, regardless of product line manufactured, is P4,600.Product A is expected to yield sales revenue of P71,000 a year with increased costs of production amounting to P42,000. Product B should yield sales revenue of P46,000 a year with increased costs of P15,000. Product C should yield sales revenue of P117,000 with increased costs of P96,000.How much is the sunk costs of the company? choices: P19,600 • P26,000 • P21,400 • P11,000
NZ Company wishes to determine the returns on two of its investment projects, A and B. Project A was established 1 year ago for $25,000 and currently has a market value of $19,500. During the year, it generated $1200 worth of after-tax receipts. Project B was established 4 years ago; its value in the year just completed declined from $14,000 to $10,800. During the year, it generated $1,900 of after-tax receipts. 1) Which projects will generate more income for NZ Company?
income or loss before income taxes. Selected segment data for Baird Company for the 2017 and 2016 fiscal years follow. Dollar amounts are in millions. Europe, Middle East, & Africa North America Asia Pacific Latin America 2017 Fiscal Year Net operating revenues $ 8,871 $7,532 3,946 5,735 $4,977 2,419 2,372 $4,216 Income before taxes 2,567 17,919 2,511 Identifiable operating assets 2,236 2016 Fiscal Year Net operating revenues 7,241 3,989 4,006 2,266 6,657 2,820 16,866 4,998 2,478 2,324 Income before taxes Identifiable operating assets 4,327 2,125 Required a. Compute the ROI for each of Baird's geographical segments for each fiscal year. Which segment appears to have the best performance during 2017 based on their ROls? Which segment showed the most improvement from 2016 to 2017? (Round your percentage answers to 1 decimal place and other answers to nearest dollar amount.) b. Assuming Baird's management expects a minimum return of 30 percent, calculate the residual income for each…
HappyDay is planning to invest $20 million and acquire a new production line at the beginning of Year 3. Also, the company has intents to change the depreciation policy in order to manage the costs of production and income tax expenses better. Your new boss asks you to calculate depreciation expenses using straight-line, double-declining balance and units-of-production methods to determine which of the methods is better. The new asset is expected to have a 10-year useful life. The total production is estimated at 500,000 tons. With respect to the new asset, HappyDay is expecting to generate the following results in Years 3-5. Year 3 Year 4 Year 5 Expected amount of production, tons 45,000 65,000 60,000 Net Sales, thousand $ 85,000 120,000 110,000 Expenses (before depreciation and income tax), thousand $ 45,000 80,000 73,000 Income tax rate, % 30 30 30 Answer the following question 2. Compute HappyDay’s Total Expenses, Income…
YK Ltd is analyzing its capital expenditure proposals for the purchase of equipment in the coming year. The capital budget is limited to $5,000,000 for the year. Mr Lam, the chief accountant of YK Ltd, is preparing an analysis of the three projects for the senior management. The straight-line method of depreciation is adopted for each project. The residual value of project A is $200,000, whereas the residual value for project B and C is zero. The company expects no liquidity problem in coming years. All revenue and expenses are in cash. YK Ltd require a minimum return on investment of 10%. The initial cost of investment and the projected annual operating income are shown below. Project B $3,200,000 $1,500,000 $4,000,000 Project A Project C Initial investment Projected annual operating income Year 1 Year 2 $250,000 $250,000 $(100,000) $1,000,000 $1,000,000 $ (800,000) $ (900,000) $ 400,000 $ 300,000 Year 3 Year 4 $250,000 $250,000 Internal rate of return 12% 17% 5% Estimated useful life…

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