Problem 14-44 (Algo) Comparing Business Units Using Economic Value Added (EVA) (LO 14-4)Colonial Pharmaceuticals is a small firm specializing in new products. It is organized into two divisions, which are based on theproducts they produce. AC Division is smaller and the life of the products it produces tend to be shorter than those produced by thelarger SO Division. Selected financial data for the past year is shown as follows. Divisional investment is as of the beginning of theyear. Colonial Pharmaceuticals uses a 8 percent cost of capital and uses beginning of the-year Investment when computing ROI andresidual income. Ignore income taxes.Allocated corp. overheadCost of goods soldDivisional investmentR&DAC Division$ 6153,2309,3002,1508,600so Division$ 1,6506,00078, 5003,60018, 5001,380SalesSGRA745R&D is assumed to have a two-year life in the AC Divisilon and a nine year life in the SO division. All R&D expenditures are spent at thebeginning of the year. Assume there are no current liabilities and (unrealistically) that no R&D Investments had taken place before thisуearRequired:a. Compute EVA for the two divisions. (Do not round intermediate calculations.)AC DivisionSO DivisionEconomic value added

Answer - Working note- 1. Calculation of NOPAT (net operating profit after tax) : Statement of…

Answered: Problem 14-44 (Algo) Comparing Business…

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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