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 EVA.The 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 $18.018 million for year 2. R&D expenditures in year 1 amounted to $7.218million and in year 2, R&D expenditures were $12.018 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 $72.018 million at thebeginning of year 2 and current liabilities of $1,518,000. 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)

Economic value added is helpful in computing the amount of economic profit the company generates…

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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Collison and Ryder Company (C&R) has been experiencing declining market conditions for its sportswear division. Management decided to test the assets of the division for possible impairment. The test revealed the following: book value of division’s assets, $26.5 million; fair value of division’s assets, $21 million; sum of estimated future cash flows generated from the division’s assets, $28 million. What amount of impairment loss should C&R recognize?
Vikrambahi

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