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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.
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 twoyear life. That is the R&D expenditures are capitalized and then amortized over two years.
Aerospace Division of Normandy shows aftertax income of $ million for year R&D expenditures in year amounted to $ million and in year R&D expenditures were $ milion. 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 $ million at the beginning of year and current liabilities of $ Normandy computes EVA using divisional investment at the beginning of the year and a percent cost of capital.
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Compute EVA for Aerospace Division for year
Note: Enter your answers in dollars, not in millions.
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