Biddle Company uses EVA to evaluate the performance of division managers. For the Wallace Division after-tax divisional income was $600,000 in year 3 The company adjusts the after-tax income for advertising expenses First it adds the annual advertising expenses back to after-tax divisional income. Second, the company managers believe that advertising has a three-year positive effect on the sale of the company's products, so it amortizes advertising over three years. Advertising expenses in year 1 will be expensed 50 percent. 40 percent in year 2, and 10 percent in year 3. Advertising expenses in year 2 will be expensed 50 percent, 40 percent in year 3, and 10 percent in year 4. Advertising expenses in year 3 will be amortized 50 percent. 40 percent in year 4 and 10 percent in year 5. Third, unamortized advertising expenses become part of the divisional investment in the EVA calculations, Wallace Division incurred advertising expenses of $150,000 in year 1 and $300,000 in year 2. It incurred $360,000 of advertising in year 3 Before considering the unamortized advertising, the Wallace Division had totat assets of $6,300,000 and current liabilities of $900,000 at the beginning of year 3. Biddle Company calculates EVA using the divisional investment at the beginning of the year. The company uses a 10 percent cost of capital to compute EVA Required: Compute the EVA for the Wallace Division for year 3 X Answer is complete but not entirely correct. $ Adjusted divisional income Cost of adjusted divisional investment Economic Value Added (EVA) 915,000 X 5,610,000 X 354,000 X $ Is the division adding value to shareholders? Yes No