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. Economic value added Canal Division Lake Division
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. Economic value added Canal Division Lake Division
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Problem 14-50 (Algo) Comparing Business Units Using Economic Value Added (EVA) (LO 14-4)
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
Division
Canal ($000)
$ 4,165
20,130
61,400
12,650
52,600
4,695
Canal
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.
Lake ($000)
$ 8,950
28,700
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
Division
393,500
31,350
200,000
7,350
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