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Gable Corporate Services uses EVA to evaluate the performance of division managers. For the Media Division, after$-$tax divisional

income was $$3,200,000$ in year $3.$

The company adjusts the after$-$tax income for advertising expenses. First, It adds the annual advertising expenses back to after$-$tax

divisional income. Second, the company managers believe that advertising has a three$-$year positive effect on the sale of the

company's products, so It amortizes advertising over three years. Advertising expenses in year $1$ will be expensed $40$ percent, $35$

percent in year $2,$ and $25$ percent in year $3.$ Advertising expenses in year $2$ will be expensed $40$ percent, $35$ percent in year $3,$ and $25$

percent in year $4.$ Advertising expenses in year $3$ will be amortized $40$ percent, $35$ percent in year $4,$ and $25$ percent in year $5.$ Third,

unamortized advertising expenses become part of the divisional investment in the EVA calculations. Media Division Incurred

advertising expenses of $$580,000$ in year $1$ and $$1,090,000$ in year $2.$ It Incurred $$1,300,000$ of advertising in year $3.$

Before considering the unamortized advertising, the Media Division had total assets of $$29,600,000$ and current liabilities of

$$3,800,000$ at the beginning of year $3.$ Gable calculates EVA using the divisional investment at the beginning of the year. The

company uses a $14$ percent cost of capital to compute EVA.

Required:

Compute the EVA for the Media Division for year $3.$

Is the division adding value to shareholders?

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Required $1$

Compute the EVA for the Media Division for year $3.$

Note: Negative amounts should be indicated by a minus sign.

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