Vyaderm Case

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EVA – A CATHARTIC CHANGE?!

Prof. Zhaoyang Gu

Course
45-701

By:
Neha Arya
Marc Brands
Anil Konjalwar
Alok Satyawadi
EVA: North American Dermatology Division

We will first calculate the 1999 actual EVA retroactively and if our figure matches Vyaderm’s then we will use that method to calculate EVA for 2000 and 2001.

1999 EVA Calculation:

|In ‘000s |1999 |
|Operating earnings |20,000 |
|add R& D expense |20,000 |
|minus R & D amort. |14,972.8 |
|add ad expense |45 |
|minus ad amort. |41.34 |
|add goodwill |2500 |
|NOPBT |27530.86 |
|less taxes |7875 |
|NOPAT |19655.86 |
|In ‘000s |1999 |
|NOA |110000 |
|add cap R&D |34597.8 |
|add ad expense |43.66 |
|add acc. goodwill |7500 |
|Capital |152141.46 |

EVA = NOPAT – [Capital * Cost of Capital]
EVA = 19655.86 – [152141.46 * 0.11]
EVA = 2920.29 ~ 2920
Since this is the figure calculated by Vyaderm, we have arrived at the figures presented below using the same technique.

The figures requested by Maurice Vedrine: • 2000 EVA for the North American Division – $31,361,000 • 2000 EVA bonus payout - $252,000 • 2001 EVA for the North American Division – $(6,587,000) • 2001 EVA bonus payout - $0
The numbers used for the calculation of division EVA are presented in Exhibit 1. These were used to arrive at the report given in Exhibit 2. The methodology and assumptions for 2001 are outlined in Exhibit 3.
As is evident from the ending bank balance of the manager for 2001, not only will she not get any bonus for the year 2001 but