Problem $14-60($Algo$)$ Economic Value Added $($LO $14-4)$

Normandy Instruments invests heavily in research and development $($R&D$),$ although it must currently treat its R&D expenditures as expenses for financial accounting purposes. To encourage investment in R&D$,$ Normandy evaluates its division managers using EVA. The company adjusts accounting income for R&D expenditures by assuming these expenditures create assets with a two$-$year life. That is$,$ the R&D expenditures are capitalized and then amortized over two years.

Aerospace Division of Normandy shows after$-$tax income of $$18\mathrm{.}006$ million for year $2.$ R&D expenditures in year $1$ amounted to $$7\mathrm{.}206$ million and in year $2,$ R&D expenditures were $$12\mathrm{.}006$ million. For purposes of computing EVA, Normandy assumes all R&D expenditures are made uniformly over the year. Before adjusting for R&D$,$ Aerospace Division shows assets of $$72\mathrm{.}006$ million at the beginning of year $2$ and current liabilities of $$1,506,000.$ Normandy computes EVA using divisional investment at the beginning of the year and a $12$ percent cost of capital.

Required:

Compute EVA for Aerospace Division for year $2.$

Note: Enter your answers in dollars, not in millions. Adjusted divisional income

Cost of adjusted divisional investment

Economic value added $($EVA$)$