Question
Exercise 14-30 (Static) Evaluating Business Units Using Economic Value Added (EVA) (LO 14-4) Back Mountain Industries (BMI) has two divisions: East and West. BMI has
Exercise 14-30 (Static) Evaluating Business Units Using Economic Value Added (EVA) (LO 14-4)
Back Mountain Industries (BMI) has two divisions: East and West. BMI has a cost of capital of 15 percent. Selected financial information (in thousands of dollars) for the first year of business follows.
East | West | |||||
Sales revenue | $ | 1,000 | $ | 5,000 | ||
Income | 237 | .5 | 435 | |||
Investment (beginning of year) | 2,000 | 3,000 | ||||
Current liabilities (beginning of year) | 200 | 100 | ||||
R&D expendituresa | 500 | 400 | ||||
aR&D is assumed to benefit two years. All R&D expenditure is made at the beginning of the first year.
Required:
Evaluate the performance of the two divisions assuming BMI uses economic value added (EVA). (Enter answers in thousands of dollars. Round your answers to 1 decimal place.)
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