Exercise 12-13 The following income statements and other information are availab

Question

Exercise 12-13

The following income statements and other information are available for the Schneider Company:

Calculate EVA for 2014. Assume that for purposes of calculating EVA, the company capitalizes research and development expenditures and amortizes them over three years, including the year they are incurred. For external reporting purposes, research and development is expensed in the year incurred, as indicated in the income statements above. (Round answer to the nearest whole dollar, e.g. 5,725.)

2014 2013 2012 Sales $377,100,000 $247,400,000 $196,300,000 Less cost of goods sold 207,405,000 118,752,000 94,224,000 Gross margin 169,695,000 128,648,000 102,076,000 Less:       Selling and administrative costs 26,397,000 24,740,000 19,630,000       Research and development 15,084,000 12,370,000 9,815,000 Income from operations 128,214,000 91,538,000 72,631,000 Less taxes on income 38,464,200 27,461,400 21,789,300 Net income $89,749,800 $64,076,600 $50,841,700 Total assets $717,600,000 $660,200,000 $445,200,000 Noninterest-bearing current liabilities 143,500,000 11,220,000 98,490,000 Cost of capital 12% 12% 12%

Explanation / Answer

EVA= Net operating profit after tax- Capital Invested*WACC R& D expenditure 2012 2013 2014 Income Effect            9,815,000     12,370,000                15,084,000      15,084,000 amortize for 2012           -3,271,667      -3,271,667                -3,271,667      -3,271,667 amortize for 2013      -4,123,333                -4,123,333      -4,123,333 amortize for 2014                -5,028,000      -5,028,000 Assets Balance                         -         4,123,333                10,056,000        2,661,000 Net Operating Profit after Tax 89749900+2661000*(1-0.3)=                91,612,600 Capital Invested 717600000+4123333+10056000=              731,779,333 Cost of capital % 12.0% Cost of Capital                87,813,520 EVA 91612600-87813520=                  3,799,080 30% is tax rate verified below as statement Income from operation 128214000 91538000 30% tax 38464200 27461400

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