Refer to the data in Exercise.

In Exercise, Back Mountain Industries (BMI) has two divisions: East and West. BMI has a cost-of-capital of 15%. Selected financial information (in thousands of dollars) for the first year of business follows:

a R&D is assumed to benefit two periods. All R&D is spent at the beginning of the year.

Required
Evaluate the performance of the two divisions assuming BMI uses residualincome.

Transcribed Image Text:

East West Investment (beginning of year). .. .2,000 3,000 Current liabilities (beginning of year) 200 200 R&D expenditures (note a).. 500 400