Question
- Ramen Company had NOPAT of $5,000,000 in 2006. This included $700,000 in research and development expense for 2006. Additionally, research and development in 2005 and 2004 were, respectively, $600,000 and $500,000. Ramen is subject to a 30% tax rate. Adjust NOPAT for use in the EVA calculation. Assume that research and development is capitalized and amortized over 3 years.
Ramen Company had NOPAT of $5,000,000 in 2006. This included $700,000 in research and development expense for 2006. Additionally, research and development in 2005 and 2004 were, respectively, $600,000 and $500,000. Ramen is subject to a 30% tax rate. Adjust NOPAT for use in the EVA calculation. Assume that research and development is capitalized and amortized over 3 years. Ramen Company had NOPAT of $5,000,000 in 2006. This included $700,000 in research and development expense for 2006. Additionally, research and development in 2005 and 2004 were, respectively, $600,000 and $500,000. Ramen is subject to a 30% tax rate. Adjust NOPAT for use in the EVA calculation. Assume that research and development is capitalized and amortized over 3 years. Ramen Company had NOPAT of $5,000,000 in 2006. This included $700,000 in research and development expense for 2006. Additionally, research and development in 2005 and 2004 were, respectively, $600,000 and $500,000. Ramen is subject to a 30% tax rate. Adjust NOPAT for use in the EVA calculation. Assume that research and development is capitalized and amortized over 3 years. Ramen Company had NOPAT of $5,000,000 in 2006. This included $700,000 in research and development expense for 2006. Additionally, research and development in 2005 and 2004 were, respectively, $600,000 and $500,000. Ramen is subject to a 30% tax rate. Adjust NOPAT for use in the EVA calculation. Assume that research and development is capitalized and amortized over 3 years.
Explanation / Answer
We calculate the Adj for R&D by reducing from 2007 exp, the xpnses for 2005, 2006 & 2007.
As amortization is 3 Yrs for R&D exp,
Total Amortiztion in 2007 = (700000+600000+500000)/3 = 600000
EVA = NOPAT adj. for R&D, net of tax
ie EVA = 5000000 + (700000-600000)*(1-30%)
ie EVA = 5070000
