Evaluate the performance of the two divisions assuming BMI uses economic value a

Question

Evaluate the performance of the two divisions assuming BMI uses economic value added...

Evaluate the performance of the two divisions assuming BMI uses economic value added...

Back Mountain Industries (BMI) has two divisions: East and West. BMI has a cost-of-capital of 15.8% Selected financial information (in thousands of dollars) for the first year of business follows Sales revenue Income Investment (beginning of year) Current liabilities (beginning of year) R&D; expenditures (note a) West $ 1,400 $ 5,800 470 2,400 3,400 280 480 East 280 280 660 a R&D; is assumed to benefit two periods. All R&D; is spent at the beginning of the year Required Evaluate the performance of the two divisions assuming BMI uses economic value added. (Do not round your intermediate computations and round your final answers to one decimal place.) East West Economic Value Added

Explanation / Answer

Economic value added = Operating Capital * (Net operating profit after tax   -    Cost of Capital)

East                                     =   (-) 107.1

West    = (-) 60.8                                

Workings:

East West Economic Value Added (-) 107.1 (-)60.8

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