Using data from case exhibit 8 calculate the following:1) 2017 EVA for the North American Dermatology Division2) 2017 EVA bonus payout for a manager assuming that the manager’s salary is $300,000 and the bonus is based 100% on divisional EVA3) 2018 EVA and estimated bonus payout for the same manager, assuming that Vyaderm profits fall back to historical levels and that the EVA improvement goal remains constant.

(B) Based on your analysis what would you recommend to Mr. Vedrine?

 

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101-019 North American Dermatology Financial Data for EVA Calculation Exhibit 8 ($ 000s except bonus) 2013 2014 Divisional EVA Calculation: Actual EVA EVA Improvement Goal EVA Target 2015 2016 2017 $3,745(a) $2,150 EVA Interval $5,895 $12,000 Profit & Loss: Income before following items: Roscarch & Devolopment Expensc $24,694 $31,512 $36,584 $42,545 $92,550 12,487 14,610 17,094 20,000 39,000 Consumer Advertising Expense Goodwill Impairment 34 38 41 45 50 0. 10,000 Net Income Before Tax $12,173 $16,864 $19,449 $22,500 $43,500 Current Years Income Tax Payments (4,261) (5,902) (6,807) (7,875) (18,725) Balance Sheet: Net Operating Assets $66,949 $79,000 $93,220 $110,000 $135,000 11% Capital Charge for EVA Purposes Divisional Manager's Bonus: $300,000 $300,000 Base Salery na 60% Bonus Target $90,000 Bonus Payout Note: (a) EVA was introduced in the Dermatology division for the first time in 2017. The 2016 EVA figure was calculated retroactively solely to set 2017 EVA targets. The 2016 EVA calculation includes the amortization of a 2012 R&D expense of $10,673. 101-019 North American Dermatology Financial Data for EVA Calculation Exhibit 8 ($ 000s except bonus) 2013 2014 Divisional EVA Calculation: Actual EVA EVA Improvement Goal EVA Target 2015 2016 2017 $3,745(a) $2,150 EVA Interval $5,895 $12,000 Profit & Loss: Income before following items: Roscarch & Devolopment Expensc $24,694 $31,512 $36,584 $42,545 $92,550 12,487 14,610 17,094 20,000 39,000 Consumer Advertising Expense Goodwill Impairment 34 38 41 45 50 0. 10,000 Net Income Before Tax $12,173 $16,864 $19,449 $22,500 $43,500 Current Years Income Tax Payments (4,261) (5,902) (6,807) (7,875) (18,725) Balance Sheet: Net Operating Assets $66,949 $79,000 $93,220 $110,000 $135,000 11% Capital Charge for EVA Purposes Divisional Manager's Bonus: $300,000 $300,000 Base Salery na 60% Bonus Target $90,000 Bonus Payout Note: (a) EVA was introduced in the Dermatology division for the first time in 2017. The 2016 EVA figure was calculated retroactively solely to set 2017 EVA targets. The 2016 EVA calculation includes the amortization of a 2012 R&D expense of $10,673.

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