2 5 points eBook Problem 14-50 (Algo) Comparing Business Units Using Economic Value Added (EVA) (LO...

Transcribed Image Text:

2 5 points eBook 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. Print References Allocated corporate overhead Cost of goods sold Divisional investment R&D Sales Selling, general and administrative (excluding R&D) Division Canal ($000) Lake ($000) $ 4,165 20,130 61,400 $ 8,950 28,700 393,500 12,650 31,350 52,600 4,695 200,000 7,350 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. 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. Canal Division Lake Division Economic value added 2 5 points eBook 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. Print References Allocated corporate overhead Cost of goods sold Divisional investment R&D Sales Selling, general and administrative (excluding R&D) Division Canal ($000) Lake ($000) $ 4,165 20,130 61,400 $ 8,950 28,700 393,500 12,650 31,350 52,600 4,695 200,000 7,350 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. 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. Canal Division Lake Division Economic value added