Bisbee Health Products invests heavily in research and development (R&D), although it must currently treat its R&D
Question:
Western Division of Bisbee shows after-tax income of $8.2 million for year 2. R&D expenditures in year 1 amounted to $3.8 million and in year 2, R&D expenditures were $5.4 million. For purposes of computing EVA, Bisbee assumes all R&D expenditures are made at the beginning of the year. Before adjusting for R&D, Western Division shows assets of $32.3 million at the beginning of year 2 and current liabilities of $620,000. Bisbee computes EVA using divisional investment at the beginning of the year and a 16 percent cost of capital.
Required:
Compute EVA for Western Division for year 2.
Adjusted divisional income ?
cost of adjusted divisional investment?
Economic value added ?
Fundamentals of Cost Accounting
ISBN: 978-0077398194
3rd Edition
Authors: William Lanen, Shannon Anderson, Michael Maher