Explain, how would you account for the $2 million that New Balance spent in the R&D of Sneaker 2013? And why?

 

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Selling, general, and administrative expenses were expected to be $7 million per year. Kirani James would be paid $2 million per year for his endorsement of Sneaker 2013, with an additional $1 million Olympic bonus in 2016. Other advertising and promotion costs were estimated as follows: Year 2013 2014 2015 2016 2017 2018 A&P Expense (millions) $25 $15 $10 $30 $25 $15 New Balance had already spent $2 million in research and development on Sneaker 2013. The Sneaker 2013 project was to be financed using a combination of equity and debt. The interest costs on the debt were expected to be approximately $1.2 million per year. The New Balance discount rate for new projects such as this was 11%. New Balance's effective tax rate was 40%. Selling, general, and administrative expenses were expected to be $7 million per year. Kirani James would be paid $2 million per year for his endorsement of Sneaker 2013, with an additional $1 million Olympic bonus in 2016. Other advertising and promotion costs were estimated as follows: Year 2013 2014 2015 2016 2017 2018 A&P Expense (millions) $25 $15 $10 $30 $25 $15 New Balance had already spent $2 million in research and development on Sneaker 2013. The Sneaker 2013 project was to be financed using a combination of equity and debt. The interest costs on the debt were expected to be approximately $1.2 million per year. The New Balance discount rate for new projects such as this was 11%. New Balance's effective tax rate was 40%.

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I would account for the 2 million that New Balance spent in the RD of Sneaker 2013 as a capitalized ... View the full answer