MT425 / MT 425 Managerial Finance and Accounting Kaplan University (KU Campu

MT425 / MT 425
Managerial Finance and Accounting
Kaplan University (KU Campus) James Jiambalvo
Managerial Accounting 4e
Hoboken NJ: John Wiley & Sons.
Unit 9: Decentralization and Performance Evaluation Chapter 12 Problem 12-8 EVA [LO 6] Atomic
Electronics is considering instituting a plan whereby managers will be
evaluated and rewarded based on a measure of economic value added (EVA).
Before adopting the plan management wants you to calculate what EVA
will be in 2012 based on financial forecasts for 2012 and prior
financial data.AND SO ON Research and development expenditures in 2010 and 2011 were $1200000
and $2100000 respectively. In calculating EVA prior research and
development will be capitalized and amortized assuming a three-year life
(i.e. one-third will be expensed in the year incurred and two-thirds
will be capitalized and expensed in the following two years). Required
a. Explain why it is important to capitalize research and development if managers are to be rewarded based on EVA.
b. Calculate forecasted EVA for 2012.
c. Will management be likely to support use of EVA as a financial performance measure?