3. The following income statements and other information are available for the D
ID: 2456545 • Letter: 3
Question
3. The following income statements and other information are available for the DW Company:
2016
2017
Sales
$230,000,000
$220,000,000
Cost of goods sold
105,000,000
96,000,000
Gross margin
145,000,000
124,000,000
Selling and administrative costs
25,000,000
22,500,000
Research and development
15,000,000
12,400,000
Income from operations
105,000,000
89,100,000
Less taxes on income
31,500,000
26,730,000
Net income
$ 73,500,000
$ 62,370,000
Total assets
$650,000,000
$605,000,000
Noninterest-bearing current liabilities
$15,000,000
$12,300,000
Interest expense is $0 and the tax rate is 33%. DW amortizes R&D over 4 years. The cost of capital is 4.3%. The required rate of return is 6.0%. By how much is invested capital adjusted as it relates to computing EVA for 2017?
2016
2017
Sales
$230,000,000
$220,000,000
Cost of goods sold
105,000,000
96,000,000
Gross margin
145,000,000
124,000,000
Selling and administrative costs
25,000,000
22,500,000
Research and development
15,000,000
12,400,000
Income from operations
105,000,000
89,100,000
Less taxes on income
31,500,000
26,730,000
Net income
$ 73,500,000
$ 62,370,000
Total assets
$650,000,000
$605,000,000
Noninterest-bearing current liabilities
$15,000,000
$12,300,000
Explanation / Answer
Given data of 2017,
Total assets = $605000000
Non Interest Bearing Current liabilities = $12300000
R & D Expenses amortised = $12400000
Total R & D Expeses = $49600000 ($12400000*4)
Invested Capital
= Total assets - Non Interest bearing current liabilities
= $605000000 - $12300000
= $592700000
Invested Capital adjusted for computing EVA for 2017
= Invested Capital + R & D Expenses
= $592700000 + $49600000
= $642300000
Invested Capital adjusted to compute EVA for 2017 = $642300000
Note: It is assumed that R & D Expenses have been incurred in 2017 and amortization started from 2017.
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.