Homework Help is Here – Start Your Trial Now!
Business
Accounting
es Navarre Energy Research specializes in developing and commercializing new products. It is organized into two divisions, which are based on the products they produce. Canal Division is smaller, and the lives of the products it produces tend to be shorter than those produced by the larger Lake Division. Selected financial data for the past year are shown in the following table. Divisional investment is as of the beginning of the year. Navarre uses a(n) 8 percent cost of capital and beginning-of-the-year investment when computing ROI and residual income. Ignore income taxes. Allocated corporate overhead Cost of goods sold Divisional investment R&D Sales. Selling, general and administrative (excluding R&D) Division Canal (5000) $4,600 25,000 60,600 12,500 60,000 5,000 Lake (5000) $ 9,850 30,500 400,000 54,000 150,000 7,750 R&D is assumed to have a three-year life in Canal Division and an eight-year life in Lake Division. All R&D expenditures are spent at the beginning of the year. Assume there are no current liabilities and (unrealistically) that no R&D investments had taken place before this year. The manager of the Canal Division complains that the calculation of EVA is unfair because a much longer life is assumed for the Lake Division in calculating EVA. The manager of Lake Division responds that EVA is supposed to reflect economic reality and that the reality is that R&D investments in Lake Division do have a longer life. Required: a. Assume that the economic life of R&D investments is three years in the Canal Division. What economic life would the R&D investments in the Lake Division have to make EVA in the two divisions equal?

es Navarre Energy Research specializes in developing and commercializing new products. It is organized into two divisions, which are based on the products they produce. Canal Division is smaller, and the lives of the products it produces tend to be shorter than those produced by the larger Lake Division. Selected financial data for the past year are shown in the following table. Divisional investment is as of the beginning of the year. Navarre uses a(n) 8 percent cost of capital and beginning-of-the-year investment when computing ROI and residual income. Ignore income taxes. Allocated corporate overhead Cost of goods sold Divisional investment R&D Sales. Selling, general and administrative (excluding R&D) Division Canal (5000) $4,600 25,000 60,600 12,500 60,000 5,000 Lake (5000) $ 9,850 30,500 400,000 54,000 150,000 7,750 R&D is assumed to have a three-year life in Canal Division and an eight-year life in Lake Division. All R&D expenditures are spent at the beginning of the year. Assume there are no current liabilities and (unrealistically) that no R&D investments had taken place before this year. The manager of the Canal Division complains that the calculation of EVA is unfair because a much longer life is assumed for the Lake Division in calculating EVA. The manager of Lake Division responds that EVA is supposed to reflect economic reality and that the reality is that R&D investments in Lake Division do have a longer life. Required: a. Assume that the economic life of R&D investments is three years in the Canal Division. What economic life would the R&D investments in the Lake Division have to make EVA in the two divisions equal?

Financial And Managerial Accounting
Financial And Managerial Accounting
15th Edition
ISBN:9781337902663
Author:WARREN, Carl S.
Publisher:WARREN, Carl S.
Chapter24: Evaluating Decentralized Operations
Section: Chapter Questions
Problem 4TIF: The three divisions of Yummy Foods are Snack Goods, Cereal, and Frozen Foods. The divisions are...
See similar textbooks
icon
Related questions
Question

F38.

 

Navarre Energy Research specializes in developing and commercializing new products. It is organized into two divisions, which are based on the products they produce. Canal Division is smaller, and the lives of the products it produces tend to be shorter than those produced by the larger Lake Division. Selected financial data for the past year are shown in the following table. Divisional investment is as of the beginning of the year. Navarre uses a(n) 8 percent cost of capital and beginning-of-the-year investment when computing ROI and residual income. Ignore income taxes. Allocated corporate overhead Cost of goods sold Divisional investment R&D Sales Selling, general and administrative (excluding R&D) Division Canal (5000) $ 4,600 25,000 60,600 12,500 60,000 5,000 R&D is assumed to have a three-year life in Canal Division and an eight-year life in Lake Division. All R&D expenditures are spent at the beginning of the year. Assume there are no current liabilities and (unrealistically) that no R&D investments had taken place before this year. Economic life Lake ($000) $ 9,850 30,500 400,000 54,000 150,000 7,750 The manager of the Canal Division complains that the calculation of EVA is unfair because a much longer life is assumed for the Lake Division in calculating EVA. The manager of Lake Division responds that EVA is supposed to reflect economic reality and that the reality is that R&D investments in Lake Division do have a longer life. years Required: a. Assume that the economic life of R&D investments is three years in the Canal Division. What economic life would the R&D investments in the Lake Division have to make EVA in the two divisions equal? Note: Do not round intermediate calculations. Round final answer to 1 decimal place.
Transcribed Image Text:Navarre Energy Research specializes in developing and commercializing new products. It is organized into two divisions, which are based on the products they produce. Canal Division is smaller, and the lives of the products it produces tend to be shorter than those produced by the larger Lake Division. Selected financial data for the past year are shown in the following table. Divisional investment is as of the beginning of the year. Navarre uses a(n) 8 percent cost of capital and beginning-of-the-year investment when computing ROI and residual income. Ignore income taxes. Allocated corporate overhead Cost of goods sold Divisional investment R&D Sales Selling, general and administrative (excluding R&D) Division Canal (5000) $ 4,600 25,000 60,600 12,500 60,000 5,000 R&D is assumed to have a three-year life in Canal Division and an eight-year life in Lake Division. All R&D expenditures are spent at the beginning of the year. Assume there are no current liabilities and (unrealistically) that no R&D investments had taken place before this year. Economic life Lake ($000) $ 9,850 30,500 400,000 54,000 150,000 7,750 The manager of the Canal Division complains that the calculation of EVA is unfair because a much longer life is assumed for the Lake Division in calculating EVA. The manager of Lake Division responds that EVA is supposed to reflect economic reality and that the reality is that R&D investments in Lake Division do have a longer life. years Required: a. Assume that the economic life of R&D investments is three years in the Canal Division. What economic life would the R&D investments in the Lake Division have to make EVA in the two divisions equal? Note: Do not round intermediate calculations. Round final answer to 1 decimal place.
Expert Solution
steps

Step by step

Solved in 3 steps

SEE SOLUTIONCheck out a sample Q&A here
Blurred answer
Knowledge Booster
Strategic business units
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
Financial And Managerial Accounting
Financial And Managerial Accounting
Accounting
ISBN:
9781337902663
Author:
WARREN, Carl S.
Publisher:
Cengage Learning,
Managerial Accounting
Managerial Accounting
Accounting
ISBN:
9781337912020
Author:
Carl Warren, Ph.d. Cma William B. Tayler
Publisher:
South-Western College Pub
Managerial Accounting: The Cornerstone of Busines…
Managerial Accounting: The Cornerstone of Busines…
Accounting
ISBN:
9781337115773
Author:
Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Publisher:
Cengage Learning
Cornerstones of Cost Management (Cornerstones Ser…
Cornerstones of Cost Management (Cornerstones Ser…
Accounting
ISBN:
9781305970663
Author:
Don R. Hansen, Maryanne M. Mowen
Publisher:
Cengage Learning
Principles of Accounting Volume 2
Principles of Accounting Volume 2
Accounting
ISBN:
9781947172609
Author:
OpenStax
Publisher:
OpenStax College
SEE MORE TEXTBOOKS