Becky's Bikes Inc

question 35

Essay

Becky's Bikes Inc.has two divisions: Retail and Service.The following information is for each division at Becky's Bikes for the most recent fiscal year.

To calculate EVA,management requires adjustments for marketing and non-interest bearing current liabilities as outlined below.
Marketing will be capitalized and amortized over several years resulting in an increase to average operating assets of $50,000 for the Retail division and $32,500 for the Services division.On the income statement,marketing expense for the year will be added back to operating income,then marketing amortization expense for one year will be deducted.The current year amortization expense will total $30,000 for the Retail division and $20,000 for the Services division.
Non-interest bearing liabilities will be deducted from average operating assets.
Calculate economic value added (EVA)for each division and comment on your results.

Analyze the impact of depreciation, including straight-line depreciation, on the NPV calculations.

Apply tax considerations to capital budgeting analyses, including the effect of tax rates on project inflows and outflows.

Integrate working capital requirements and their release into NPV calculations.

Incorporate one-time expenses and their timing into capital budgeting projects.

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Definitions:

Rhomboideus Group

A set of muscles in the upper back that connect the spine to the scapula, aiding in shoulder movement and stability.

Intercostal Group

Muscles located between the ribs that assist with the breathing process by aiding in the expansion and contraction of the chest cavity.

Spinotrapezius

A back muscle that assists in moving the scapula for the lifting of the arm.

Masseter

A facial muscle that plays a major role in the chewing of food by raising the lower jaw towards the upper jaw.