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 $ 1,208,000 454,000 432,000 Region II $ 1,658,000 814,000 642,000 R&D expenditures Current liabilities Region III $ 2,258,000 1,144,000 862,000 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 $ 166,000 106,000 Region I $ 708,000 Region II Region III 638,000 1,299,500 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 $ 5,124,000 2,412,000 1,936,000 448,000 Region II $ 226,000 156,000 Region III $ 466,000 206,000 R&D expenditures are assumed to be incurred uniformly over the period and are expected to generate benefits for three years. Required: a. Compute economic value added for the three regions. Ignore taxes. b. How have these regions performed?