Problem $14-60($Static$)$ 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 $$18\mathrm{.}0$ million for year $2.$ R&D expenditures in year $1$ amounted to $$7\mathrm{.}2$ million and in year $2,$ R&D expenditures were $$12\mathrm{.}0$ million. For purposes of computing EVA, Normandy assumes all R&D expenditures are made uniformly over the year. Before adjusting for R&D$,$ Aerospace Division shows assets of $$72$ million at the beginning of year $2$ and current liabilities of $$1,500,000.$ 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.

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

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

Aerospace Division of Normandy shows after$-$tax income of $\backslash (\backslash$$ $18\mathrm{.}0\backslash )$ million for year $2.$ R$\backslash$&D expenditures in year $1$ amounted to $\backslash (\backslash$$ $7\mathrm{.}2\backslash )$ million and in year $2,$ R$\backslash$&D expenditures were $\backslash (\backslash$$ $12\mathrm{.}0\backslash )$ million. For purposes of computing EVA, Normandy assumes all R$\backslash$&D expenditures are made uniformly over the year. Before adjusting for R$\backslash$&D$,$ Aerospace Division shows assets of $\backslash (\backslash$$ $72\backslash )$ million at the beginning of year $2$ and current llabilitles of $\backslash$$$1,500,000.$ Normandy computes EVA using divisional Investment at the beginning of the year and a $12$ percent cost of capital.

Requlred:

Compute EVA for Aerospace Division for year $2.$

Note: Enter your answers in dollars, not In millions.