S 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 RAD Sales Selling, general and administrative (excluding RSD) Economic value added Division Canal (5000) $ 4,170 20, 140 61,500 12, 700 52,800 4,710 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 (3000) $ 8,900 28,600 393,000 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 31,300 140,000 7,300
S 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 RAD Sales Selling, general and administrative (excluding RSD) Economic value added Division Canal (5000) $ 4,170 20, 140 61,500 12, 700 52,800 4,710 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 (3000) $ 8,900 28,600 393,000 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 31,300 140,000 7,300
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 RSD)
Economic value added
Division
Canal (5000)
$ 4,170
20, 140
61,500
12, 700
52,800
4,710
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.
Canal
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.
Lake (5000)
$ 8,900
28,600
393, 000
31,300
140,000
7,300
Lake
Division
Drou
EE!!
Mut
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