Pharma Inc. has two product lines organized as divisions (Pain Reliever and Weight Loser) and spends heavily on research and development (R&D) activities. The following information is related to Pharma Inc's second year of operations. Pain Reliever $450,000 $300,000 Weight Loser R&D expenditures (second year) After-tax income Current liabilities Divisional investment 1,365,000 982,000 Cost of capital In the first year, Pain Reliever spent $300,000 on R&D, while Weight Loser spent $150,000. Pharma Inc. estimates that R&D expenditures have a three-year life to be amortized according to the following schedule: 1/6 in the year incurred, 1/3 in the next two years, and 1/6 in the fourth year after the initial spending. Required: Calculate EVA for the two divisions of Pharma Inc. for its second year of operations. 275,000 584,000 $210,000 397,000 23% 23%

Pharma Inc. has two product lines organized as divisions (Pain Reliever and Weight Loser) and spends heavily on research and development (R&D) activities. The following information is related to Pharma Inc's second year of operations. Pain Reliever $450,000 $300,000 Weight Loser R&D expenditures (second year) After-tax income Current liabilities Divisional investment 1,365,000 982,000 Cost of capital In the first year, Pain Reliever spent $300,000 on R&D, while Weight Loser spent $150,000. Pharma Inc. estimates that R&D expenditures have a three-year life to be amortized according to the following schedule: 1/6 in the year incurred, 1/3 in the next two years, and 1/6 in the fourth year after the initial spending. Required: Calculate EVA for the two divisions of Pharma Inc. for its second year of operations. 275,000 584,000 $210,000 397,000 23% 23%

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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Subject: acc
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1. Compute the residual income of MCC. 2. Compute the EVA of MCC.

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