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"""give me complete correct appropriate detailed answer in 4 steps step 1 about introduction or overview of question step 2 & 3 about answer with proper calculation and its formula , tables if required also mention step titles and last only final answer as per question asked format and requirements " provide ALL THE ANSWER WITH FUIL CALVCULATION WITHOUT AI VOICES STRICTLYEe fo a co he ee cise 1 36 (Algo) Comparing Business Units Using Economic Value Added (EVA) (LC Lauderdale Corporation is organized in three geographical divisions (regions) with managers responsible for reves assets in their respective regions. The firm is highly decentralized and managers are evaluated solely on division Corporate overhead (all fixed) is allocated to the regions based on regional gross margin (regional revenue minus The following information is from Lauderdale's first year of operations: Fa BE: Total = To Region T Region IT Region III Corporation = Revenues $ 1,214,000 $ 1,664,000 $ 2,264,000 $ 5,142,000 E Cost of sales 457,000 817,000 1,147,000 2,421,000 E Selling, General and 3 Ad: inistrative (all fixed) 441,000 651, 000 871,000 1,963, 000 3 Corporate overhead 460, 000 ormation on the division assets in the three regions of Lauderdale Corporation follows: E Region T $ 714,000 BE Region II 644,000 ol gion IIT 1,308,500 oa iderdale Corporation has a cost of capital of 8.6 percent Pier fe Prey, of 25 Ne 2 =< ees 3 Sa “4 Information on the division assets in the three regions of Lauderdale Corporation follows: E Be id Region IT $ 714,000 ; Region IT 644,000 4 Region III 1,308, 560 : * Lauderdale Corporation has a cost of capital of 86 percent E = E ~The individual regions are responsible for research and development (R&D) decisions and for current liabilities. Information on R&D "expenditures (which are included in SG&A) for the year and current liabilities for the three regions follows: 4 CE Region I Region II Region ITT E- "R&D expenditures $178,000 S 238,000 $ 478,000 Ee Current liabilities 118,000 168,000 218,000 - RED expenditures are assumed to be incurred uniformly over the period and are expected to generate benefits for three yearss 1 8 Compute economic value added for the three regions. Ignore taxes - How have these regions performed? 8 ® E Complete this question by entering your answers In the tabs below. Bre: TRE “a fe oe i ios < Prey of 25 EE Next > »

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"""give me complete correct appropriate detailed answer in 4 steps step 1 about introduction or overview of question step 2 & 3 about answer with proper calculation and its formula , tables if required also mention step titles and last only final answer as per question asked format and requirements " provide ALL THE ANSWER WITH FUIL CALVCULATION WITHOUT AI VOICES STRICTLYUploaded ImageUploaded ImageEe fo a co he ee cise 1 36 (Algo) Comparing Business Units Using Economic Value Added (EVA) (LC Lauderdale Corporation is organized in three geographical divisions (regions) with managers responsible for reves assets in their respective regions. The firm is highly decentralized and managers are evaluated solely on division Corporate overhead (all fixed) is allocated to the regions based on regional gross margin (regional revenue minus The following information is from Lauderdale's first year of operations: Fa BE: Total = To Region T Region IT Region III Corporation = Revenues $ 1,214,000 $ 1,664,000 $ 2,264,000 $ 5,142,000 E Cost of sales 457,000 817,000 1,147,000 2,421,000 E Selling, General and 3 Ad: inistrative (all fixed) 441,000 651, 000 871,000 1,963, 000 3 Corporate overhead 460, 000 ormation on the division assets in the three regions of Lauderdale Corporation follows: E Region T $ 714,000 BE Region II 644,000 ol gion IIT 1,308,500 oa iderdale Corporation has a cost of capital of 8.6 percent Pier fe Prey, of 25 Ne 2 =< ees 3 Sa “4 Information on the division assets in the three regions of Lauderdale Corporation follows: E Be id Region IT $ 714,000 ; Region IT 644,000 4 Region III 1,308, 560 : * Lauderdale Corporation has a cost of capital of 86 percent E = E ~The individual regions are responsible for research and development (R&D) decisions and for current liabilities. Information on R&D "expenditures (which are included in SG&A) for the year and current liabilities for the three regions follows: 4 CE Region I Region II Region ITT E- "R&D expenditures $178,000 S 238,000 $ 478,000 Ee Current liabilities 118,000 168,000 218,000 - RED expenditures are assumed to be incurred uniformly over the period and are expected to generate benefits for three yearss 1 8 Compute economic value added for the three regions. Ignore taxes - How have these regions performed? 8 ® E Complete this question by entering your answers In the tabs below. Bre: TRE “a fe oe i ios < Prey of 25 EE Next > »

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Asked by: Test User 100164
Created at: 2025-05-10 01:11:29

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Sure, here is a detailed, step-by-step answer as requested: --- ### **Step 1: Introduction/Overview** The question requires us to compute the Economic Value Added (EVA) for three regions of Lauderdale Corporation. EVA is a performance metric that shows the true economic profit of a company or division. EVA is calculated as Net Operating Profit After Taxes (NOPAT) minus the capital charge (cost of capital × capital employed). For this question, ignore taxes as per instructions. The corporate overhead is allocated based on gross margin, and capital employed includes assets, R&D (amortized), and deducts current liabilities. --- ### **Step 2: Calculation of EVA Components** #### **A. Allocate Corporate Overhead** **Gross Margin Calculation:** | | Region I | Region II | Region III | Total | |------------------|----------|-----------|------------|-----------| | Revenue | 1,214,000| 1,664,000 | 2,264,000 | 5,142,000 | | Cost of Sales | 457,000 | 817,000 | 1,147,000 | 2,421,000 | | Gross Margin | 757,000 | 847,000 | 1,117,000 | 2,721,000 | Share of Gross Margin: - Region I: 757,000 / 2,721,000 = 27.83% - Region II: 847,000 / 2,721,000 = 31.14% - Region III: 1,117,000 / 2,721,000 = 41.03% Corporate Overhead Allocation (460,000 total): - Region I: 460,000 × 27.83% = **128,018** - Region II: 460,000 × 31.14% = **143,244** - Region III: 460,000 × 41.03% = **188,738** #### **B. Calculate Net Operating Profit (NOPAT, pre-tax)** | | Region I | Region II | Region III | |------------------|----------|-----------|------------| | Revenue | 1,214,000| 1,664,000 | 2,264,000 | | Cost of Sales | 457,000 | 817,000 | 1,147,000 | | SG&A | 441,000 | 651,000 | 871,000 | | Corporate Over. | 128,018 | 143,244 | 188,738 | | **NOPAT** | 1,214,000 - 457,000 - 441,000 - 128,018 = 187,982 | 1,664,000 - 817,000 - 651,000 - 143,244 = 52,756 | 2,264,000 - 1,147,000 - 871,000 - 188,738 = 57,262 | #### **C. Calculate Capital Employed** - **Assets** (given) - **R&D (amortized over 3 years)**: Only 1/3 of the current year's R&D is capitalized - Region I: 178,000 × (3/2) = 267,000 (since this year's and previous 2 years' R&D are capitalized, but only 2/3 remains unamortized after 1 year) - Region II: 238,000 × (3/2) = 357,000 - Region III: 478,000 × (3/2) = 717,000 *But since each year is amortized over three years, the average capitalized R&D is 2/3 of annual spend:* - Region I: 178,000 × 2/3 = **118,667** - Region II: 238,000 × 2/3 = **158,667** - Region III: 478,000 × 2/3 = **318,667** - **Current Liabilities** (given) **Capital Employed = Assets + Capitalized R&D - Current Liabilities** | | Region I | Region II | Region III | |------------------|----------|-----------|-------------| | Assets | 714,000 | 644,000 | 1,308,500 | | R&D capitalized | 118,667 | 158,667 | 318,667 | | Current Liab. | 118,000 | 168,000 | 218,000 | | **Capital Employed** | 714,000 + 118,667 - 118,000 = 714,667 | 644,000 + 158,667 - 168,000 = 634,667 | 1,308,500 + 318,667 - 218,000 = 1,409,167 | #### **D. Capital Charge** Cost of Capital = 8.6% Capital Charge = Capital Employed × 8.6% | | Region I | Region II | Region III | |------------------|---------------|---------------|--------------| | Capital Employed | 714,667 | 634,667 | 1,409,167 | | Capital Charge | 714,667 × 0.086 = 61,461 | 634,667 × 0.086 = 54,581 | 1,409,167 × 0.086 = 121,188 | --- ### **Step 3: Calculate EVA for Each Region** **EVA = NOPAT (pre-tax) - Capital Charge** | | Region I | Region II | Region III | |------------------|-----------|-----------|-------------| | NOPAT | 187,982 | 52,756 | 57,262 | | Capital Charge | 61,461 | 54,581 | 121,188 | | **EVA** | 187,982 - 61,461 = **126,521** | 52,756 - 54,581 = **-1,825** | 57,262 - 121,188 = **-63,926** | --- ### **Step 4: Final Answers** **a. Economic value added for the three regions:** - Region I: **$126,521** - Region II: **($1,825)** (negative) - Region III: **($63,926)** (negative) **b. Performance Analysis:** - **Region I** performed best, generating positive EVA. - **Region II** and **Region III** both destroyed value (negative EVA), with Region III performing the worst. --- **Final Answers:** a. - Region I EVA: $126,521 - Region II EVA: ($1,825) - Region III EVA: ($63,926) b. Region I created value (positive EVA), while Region II and Region III destroyed value (negative EVA), with Region III performing worst.

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