Bajalia Company Compiled the Following Information for the Year Ending

question 111

Multiple Choice

Bajalia Company compiled the following information for the year ending December 31, 2014:
$\begin{array}{ll}\text {Research and development costs }&\$800,000 \\\text {Sales }& 6,400,000\\\text {Net income }&1,200,000 \\\text {Interest expense }&400,000 \\\text {income tax rate }& 30\%\\\end{array}$

At the end of 2014, total assets totaled $6,900,000. Bajalia's total current liabilities were $1,400,000, of which $600,000 were interest-bearing obligations. Bajalia's cost of capital is 12 percent and it amortizes intangibles over 4 years. What adjustment must Bajalia make to invested capital for accounting distortions if EVA is to be calculated for 2014?

• A) $420,000
• B) $600,000
• C) $800,000
• D) $200,000

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Definitions:

Stock Dividend

A payment made by a corporation to its shareholders in the form of additional shares, rather than cash.

Par Value

The face value of a bond or stock, representing the nominal or original value as fixed in the certificate or instrument.

Market Value

The current price at which an asset or service can be bought or sold.

Treasury Stock-Common

Shares of a company's own stock that it has reacquired from shareholders and are considered issued but not outstanding.