Problem 14-44 (Algo) Comparing Business Units Using Economic Value Added (EVA) (LO 14-4) Colonial Pharmaceuticals is a small firm specializing in new products. It is organized into two divisions, which are based on the products they produce. AC Division is smaller and the life of the products it produces tend to be shorter than those produced larger SO Division. Selected financial data for the past year is shown as follows. Divislonal investment is as of the beginning of year. Colonial Pharmaceuticals uses a 8 percent cost of capital and uses beglnning of the-year Investment when computing RC residual income. Ignore income taxes. AC Division 50 Division $1,650 6,000 78, 500 3,600 18, 500 1,380 Allocated corp. overhead Cost of goods sold Divisional investment $ 615 3,230 9,300 2,150 8,600 745 R&D Sales SGRA R&D is assumed to have a two-year life in the AC Division and a nine year life in the SO division. All R&D expenditures are spent beginning of the year. Assume there are no current liabilities and (unrealistically) that no R&D Investments had taken place before year. Required: a. Compute EVA for the two divisions. (Do not round intermediate calculations.) AC Division SO Division Economic value added
Problem 14-44 (Algo) Comparing Business Units Using Economic Value Added (EVA) (LO 14-4) Colonial Pharmaceuticals is a small firm specializing in new products. It is organized into two divisions, which are based on the products they produce. AC Division is smaller and the life of the products it produces tend to be shorter than those produced larger SO Division. Selected financial data for the past year is shown as follows. Divislonal investment is as of the beginning of year. Colonial Pharmaceuticals uses a 8 percent cost of capital and uses beglnning of the-year Investment when computing RC residual income. Ignore income taxes. AC Division 50 Division $1,650 6,000 78, 500 3,600 18, 500 1,380 Allocated corp. overhead Cost of goods sold Divisional investment $ 615 3,230 9,300 2,150 8,600 745 R&D Sales SGRA R&D is assumed to have a two-year life in the AC Division and a nine year life in the SO division. All R&D expenditures are spent beginning of the year. Assume there are no current liabilities and (unrealistically) that no R&D Investments had taken place before year. Required: a. Compute EVA for the two divisions. (Do not round intermediate calculations.) AC Division SO Division Economic value added
Survey of Accounting (Accounting I)
8th Edition
ISBN:9781305961883
Author:Carl Warren
Publisher:Carl Warren
Chapter14: Decentralized Operations
Section: Chapter Questions
Problem 14.16E
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