Normandy Instruments invests heavily in research and development (R&D), although it must currently treat its R&D expenditures as expenses 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 $18.012 million for year 2. R&D expenditures in year 1 amounted to $7.212 million and in year 2, R&D expenditures were $12.012 million. For purposes of computing EVA, Normandy assumes all R&D expenditures are made uniformly over the year. Before adjusting for R&D, Aerospace Division shows assets of $72.012 million at the beginning of year 2 and current liabilities of $1,512,000. Normandy computes EVA using divisional investment at the beginning of the year 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 di Answer is not complete.
Normandy Instruments invests heavily in research and development (R&D), although it must currently treat its R&D expenditures as expenses 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 $18.012 million for year 2. R&D expenditures in year 1 amounted to $7.212 million and in year 2, R&D expenditures were $12.012 million. For purposes of computing EVA, Normandy assumes all R&D expenditures are made uniformly over the year. Before adjusting for R&D, Aerospace Division shows assets of $72.012 million at the beginning of year 2 and current liabilities of $1,512,000. Normandy computes EVA using divisional investment at the beginning of the year 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 di Answer is not complete.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
B11.
Transcribed Image Text:Normandy Instruments invests heavily in research and development (R&D), although it must currently treat its R&D
expenditures as expenses 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 $18.012 million for year 2. R&D expenditures in year 1 amounted
to $7.212 million and in year 2, R&D expenditures were $12.012 million. For purposes of computing EVA, Normandy assumes
all R&D expenditures are made uniformly over the year. Before adjusting for R&D, Aerospace Division shows assets of
$72.012 million at the beginning of year 2 and current liabilities of $1,512,000. Normandy computes EVA using divisional
investment at the beginning of the year 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.
Answer is not complete.
Adjusted divisional income
$ 20,412,000
Transcribed Image Text:10 $7.212 million and in year 2, к&U еxpenditures were $12.01Z minion. For purposes or computing EVA, INormandy as
all R&D expenditures are made uniformly over the year. Before adjusting for R&D, Aerospace Division shows assets of
$72.012 million at the beginning of year 2 and current liabilities of $1,512,000. Normandy computes EVA using division
investment at the beginning of the year 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.
Answer is not complete.
Adjusted divisional income
Cost of adjusted divisional investment
Economic value added (EVA)
$ 20,412,000
74,106,000
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