Normandy Instruments invests heavily in research and development (R&D), although it must currently treat its R&D expenditures asexpenses for financial accounting purposes. To encourage Investment in R&D, Normandy evaluates its division managers using EVAThe 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 $18.006 million for year 2. R&D expenditures in year 1 amounted to $7.206million and in year 2, R&D expenditures were $12.006 million. For purposes of computing EVA, Normandy assumes all R&Dexpenditures are made uniformly over the year. Before adjusting for R&D, Aerospace Division shows assets of $72.006 million at thebeginning of year 2 and current liabilities of $1,506,000. Normandy computes EVA using divisional investment at the beginning of theyear 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 divisional incomeCost of adjusted divisional investmentEconomic value added (EVA)4

2. Calculate Cost of Adjusted Divisional Investment:Find Average R&D Expense:(Year 1 Expense +…

Answered: Normandy Instruments invests heavily in…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Collison and Ryder Company (C&R) has been experiencing declining market conditions for its sportswear division. Management decided to test the assets of the division for possible impairment. The test revealed the following: book value of division's assets, $26.5 million; fair value of division's assets, $21 million; undiscounted sum of estimated future cash flows generated from the division's assets, $24 million. What amount of impairment loss should C&R recognize? (Enter your answer in millions rounded to 1 decimal place (i.e., 3,300,000 should be entered as 3.3).) Impairment loss million

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