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Colonial Pharmaceuticals is a small firm specializing in new products. It is organized into two...

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Accounting

Colonial Pharmaceuticals is a small firm specializing in new products. It is organized into two divisions, which are based on the products they produce.

AC Division is smaller and the life of the products it produces tend to be shorter than those produced by the larger SO Division. Selected financial data for the past year is shown below.

Divisional investment is as of the beginning of the year.

Colonial Pharmaceuticals uses a 8 percent cost of capital and uses beginning-of-the-year investment when computing ROI and residual income. Ignore income taxes.

AC Division

SO Division

Allocated corp. overhead

$

655

$

1,250

Cost of goods sold

3,310

5,900

Divisional investment

10,100

74,500

R&D

2,550

3,600

Sales

10,200

19,000

SG&A

865

980

R&D assumed to have a two-year life in the AC Division and a nine-year life in the SO 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.

Required:

a.Compute EVA for the two divisions. (Do not round intermediate calculations)

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