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Required: a. Compute EVA for the two divisions. Note: Do not round intermediate calculations. Enter your answers in thousands of dollars. Economic value added Canal Division Lake Division

Required: a. Compute EVA for the two divisions. Note: Do not round intermediate calculations. Enter your answers in thousands of dollars. Economic value added Canal Division Lake Division

FINANCIAL ACCOUNTING
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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Navarre Energy Research specializes in developing and commercializing new products. It is organized into two divisions, which are based on the products they produce. Canal Division is smaller, and the lives of the products it produces tend to be shorter than those produced by the larger Lake Division. Selected financial data for the past year are shown in the following table. Divisional investment is as of the beginning of the year. Navarre uses an 8 percent cost of capital and beginning-of-the-year investment when computing ROI and residual income. Ignore income taxes. Allocated corporate overhead Cost of goods sold Divisional investment. R&D Sales Selling, general and administrative (excluding R&D) Economic value added Division Canal ($000) $ 4,100 20,000 60,100 12,000 50,000 4,500 Canal Division R&D is assumed to have a three-year life in Canal Division and an eight-year life in Lake Division. All R&D expenditures are spent at the beginning of the year. Assume there are no current liabilities and (unrealistically) that no R&D investments had taken place before this year. Required: a. Compute EVA for the two divisions. Note: Do not round intermediate calculations. Enter your answers in thousands of dollars. Lake Division Lake ($000) $ 9,600 30,000 400,000 32,000 100,000 8,000 < Prev 5 of 5 # Next >
Transcribed Image Text:Navarre Energy Research specializes in developing and commercializing new products. It is organized into two divisions, which are based on the products they produce. Canal Division is smaller, and the lives of the products it produces tend to be shorter than those produced by the larger Lake Division. Selected financial data for the past year are shown in the following table. Divisional investment is as of the beginning of the year. Navarre uses an 8 percent cost of capital and beginning-of-the-year investment when computing ROI and residual income. Ignore income taxes. Allocated corporate overhead Cost of goods sold Divisional investment. R&D Sales Selling, general and administrative (excluding R&D) Economic value added Division Canal ($000) $ 4,100 20,000 60,100 12,000 50,000 4,500 Canal Division R&D is assumed to have a three-year life in Canal Division and an eight-year life in Lake Division. All R&D expenditures are spent at the beginning of the year. Assume there are no current liabilities and (unrealistically) that no R&D investments had taken place before this year. Required: a. Compute EVA for the two divisions. Note: Do not round intermediate calculations. Enter your answers in thousands of dollars. Lake Division Lake ($000) $ 9,600 30,000 400,000 32,000 100,000 8,000 < Prev 5 of 5 # Next >
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