The Bio Med Company has spent $1.2 million, $1.5 million, and $1.8 million over the last three years on R&D of its pharmaceuticals division, and spent $2.4 million this year. a. Calculate the amount of R&D assets and R&D expense in the current year under two alternative accounting procedures: (1) all current year R&D is expensed immediately, and (2) R&D is capitalized and then amortized over three years. (Assume that all R&D spending for the year occurs on the first day of the year.) The above company has EVA before R&D of $15.2 million and a weighted-average cost of capital of 20 percent. b. Explain how EVA is a better measure for divisional performance evaluation, as compared to RI and RoI. c. Calculate its EVA under two alternative accounting procedures: (1) All current year R&D is expensed immediately, and (2) R&D is capitalized and then amortized over three years. d. Comment on how the two alternative accounting procedures impact the calculation of EVA and managerial decision making.

The Bio Med Company has spent \$1.2 million, \$1.5 million, and \$1.8 million over the last three years on R\&D of its pharmaceuticals division, and spent $2.4 million this year. a. Calculate the amount of R\&D assets and R\&D expense in the current year under two alternative accounting procedures: (1) all current year R&D is expensed immediately, and (2) R\&D is capitalized and then amortized over three years. (Assume that all R\&D spending for the year occurs on the first day of the year.) The above company has EVA before R\&D of $15.2 million and a weighted-average cost of capital of 20 percent. b. Explain how EVA is a better measure for divisional performance evaluation, as compared to RI and Rol. c. Calculate its EVA under two alternative accounting procedures: (1) All current year R&D is expensed immediately, and (2)R\&D is capitalized and then amortized over three years. d. Comment on how the two alternative accounting procedures impact the calculation of EVA and managerial decision making