Trevor Company paid $8 million cash for research and development.EVA capital was computed as $20 million.Trevor Company cost of capital was 20%.To add economic value to the firm, Trevor Company must generate revenues less operating costs of at least _____.

Question

Quizplus · Accepted Answer

To add economic value, Trevor Company must generate revenues less operating costs that cover both the cost of capital and the R&D expense. The cost of capital is 20% of $20 million, which is $4 million. Adding the $8 million R&D expense, the total is $12 million.

Trevor Company Paid $8 Million Cash for Research and Development