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) Division Canal ($000) $ 4,160 20,120 61,300 12,600 52,400 4,680 Lake ($000) $ 9,000 28,800 394,000 31,400 190,000 7,400 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. Round your final answers to nearest whole dollar amount. Enter your answers in thousands of dollars.
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) Division Canal ($000) $ 4,160 20,120 61,300 12,600 52,400 4,680 Lake ($000) $ 9,000 28,800 394,000 31,400 190,000 7,400 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. Round your final answers to nearest whole dollar amount. Enter your answers in thousands of dollars.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
M16.
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)
$ 4,160
20,120
61,300
12,600
52,400
4,680
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.
Canal
Division
Required:
a. Compute EVA for the two divisions.
Note: Do not round intermediate calculations. Round your final answers to nearest whole dollar amount. Enter your answers in
thousands of dollars.
Lake ($000)
$ 9,000
28,800
394,000
31,400
190,000
7,400
Lake
Division
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