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 adeinistrative (excluding R&D) Division Canal (5000) $4,185 20,170 61,800 12,850 53,400 4,755 Lake (5000) $ 8,750 28,300 391,500 31,150 150,000 7,150 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
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 adeinistrative (excluding R&D) Division Canal (5000) $4,185 20,170 61,800 12,850 53,400 4,755 Lake (5000) $ 8,750 28,300 391,500 31,150 150,000 7,150 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
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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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
Canal (5000)
$4,185
20,170
61,800
12,850
53,400
4,755
Canal
Division
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. Round your final answers to nearest whole dollar amount. Enter your answers in
thousands of dollars.
Lake (5000)
$ 8,750
28,300
391,500
31,150
150,000
7,150
Lake
Division
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