Exercise 14-36 (Algo) Comparing Business Units Using Economic Value Added (EVA) (LO 14-4) Lauderdale Corporation is organized in three geographical divisions (regions) with managers responsible for revenues, costs, and assets in their respective regions. The firm is highly decentralized and managers are evaluated solely on divisional performance. Corporate overhead (all fixed) is allocated to the regions based on regional gross margin (regional revenue minus regional cost of sales). The following information is from Lauderdale's first year of operations: Region I $ 1,220,000 460,000 450,000 R&D expenditures Current liabilities Region II $ 1,670,000 820,000 660,000 Region I $ 190,000 130,000. Region III $ 2,270,000 1,150,000 1 880,000 Revenues Cont of sales Selling, General and Administrative (all fixed) Corporate overhead Information on the division assets in the three regions of Lauderdale Corporation follows: Region I $ 720,000 Region II Region III 650,000 1,317,500 Lauderdale Corporation has a cost of capital of 8.6 percent. The individual regions are responsible for research and development (R&D) decisions and for current liabilities. Information on R&D expenditures (which are included in SG&A) for the year and current liabilities for the three regions follows: Region II $ 250,000 180,000 R&D expenditures are assumed to be incurred uniformly over the period and are expected to generate benefits for three years. Total Corporation $ 5,160,000 2,430,000 1,990,000 472,000 Region II1 $ 490,000 230,000 Required: a. Compute economic value added for the three regions. Ignore taxes. b. How have these regions performed?
Exercise 14-36 (Algo) Comparing Business Units Using Economic Value Added (EVA) (LO 14-4) Lauderdale Corporation is organized in three geographical divisions (regions) with managers responsible for revenues, costs, and assets in their respective regions. The firm is highly decentralized and managers are evaluated solely on divisional performance. Corporate overhead (all fixed) is allocated to the regions based on regional gross margin (regional revenue minus regional cost of sales). The following information is from Lauderdale's first year of operations: Region I $ 1,220,000 460,000 450,000 R&D expenditures Current liabilities Region II $ 1,670,000 820,000 660,000 Region I $ 190,000 130,000. Region III $ 2,270,000 1,150,000 1 880,000 Revenues Cont of sales Selling, General and Administrative (all fixed) Corporate overhead Information on the division assets in the three regions of Lauderdale Corporation follows: Region I $ 720,000 Region II Region III 650,000 1,317,500 Lauderdale Corporation has a cost of capital of 8.6 percent. The individual regions are responsible for research and development (R&D) decisions and for current liabilities. Information on R&D expenditures (which are included in SG&A) for the year and current liabilities for the three regions follows: Region II $ 250,000 180,000 R&D expenditures are assumed to be incurred uniformly over the period and are expected to generate benefits for three years. Total Corporation $ 5,160,000 2,430,000 1,990,000 472,000 Region II1 $ 490,000 230,000 Required: a. Compute economic value added for the three regions. Ignore taxes. b. How have these regions performed?
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Chapter15: Capital Investment Analysis
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Transcribed Image Text:Exercise 14-36 (Algo) Comparing Business Units Using Economic Value Added (EVA) (LO 14-4)
Lauderdale Corporation is organized in three geographical divisions (regions) with managers responsible for revenues, costs, and
assets in their respective regions. The firm is highly decentralized and managers are evaluated solely on divisional performance.
Corporate overhead (all fixed) is allocated to the regions based on regional gross margin (regional revenue minus regional cost of
sales).
The following information is from Lauderdale's first year of operations:
Region I
$ 1,220,000
460,000
450,000
Region II
$ 1,670,000
820,000
660,000
Region III
$ 2,270,000
1,150,000
880,000
R&D expenditures
Current liabilities
Revenues
Cost of sales
Selling, General and
Administrative (all fixed)
Corporate overhead
Information on the division assets in the three regions of Lauderdale Corporation follows:
Region I
$ 720,000
Region II
Region III
650,000
1,317,500
Lauderdale Corporation has a cost of capital of 8.6 percent.
The individual regions are responsible for research and development (R&D) decisions and for current liabilities. Information on R&D
expenditures (which are included in SG&A) for the year and current liabilities for the three regions follows:
Total
Corporation
$5,160,000
2,430,000
1,990,000
472,000
Region I
$ 190,000
130,000
Region II
$ 250,000
180,000
R&D expenditures are assumed to be incurred uniformly over the period and are expected to generate benefits for three years.
Region III
$ 490,000
230,000
Required:
a. Compute economic value added for the three regions. Ignore taxes.
b. How have these regions performed?
Transcribed Image Text:Region I
Region II
Region III
Lauderdale Corporation has a cost of capital of 8.6 percent.
The individual regions are responsible for research and development (R&D) decisions and for current liabilities. Information on R&D
expenditures (which are included in SG&A) for the year and current liabilities for the three regions follows:
$ 720,000
650,000
1,317,500
Region I Region II
$ 190,000 $ 250,000
130,000 180,000
Region III
$ 490,000
230,000
R&D expenditures are assumed to be incurred uniformly over the period and are expected to generate benefits for three years.
R&D expenditures
Current liabilities
Required:
a. Compute economic value added for the three regions. Ignore taxes.
b. How have these regions performed?
Complete this question by entering your answers in the tabs below.
Required A Required B
Compute economic value added for the three regions. Ignore taxes.
Note: Do not round your intermediate calculations. Round your answers to the nearest whole dollar amount.
Economic value added
$
Region I Region II
Region III
116,722 $ (12,834) $
(66,919)
Required B >
< Required A
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