Read the Vyaderm Pharmaceuticals case study. Write a 15- to 20-page paper that addresses the questions onpage 8of the case. Include the following in your analysis:
- Compute the year 2000 EVA for the North American Dermatology Division.
- Compute the year 2000 EVA bonus payout for a manager earning $200,000, assuming that the manager's bonus is based 100% on the division's EVA.
- Compute the year 2001 EVA and estimated bonus payout for the same manager, assuming that Vyaderm profits fall back to historical levels and the EVA improvement goal remains constant.
Based on your analysis, what is your recommendation for the company?
Include a description of your approach to the issues and your solutions to the problems described in the case.
Your project should meet the following requirements:
- 10pages in length including supporting tables, as necessary
- Formatted according to the CSU-Global Guide to Writing and APA Requirements
Tips:
- The EVA program consist of three elements: EVA centers, EVA drivers, and EVA-based incentive programs. The decision point focuses on a business unit where the sudden exit of a competitor produces an unexpected one-time "windfall" in earnings. You will compute the EVA bonus payout for the current year (a high bonus) and subsequent years (a low bonus); this requires some adjustment of EVA (that is one decision of the top executives).
- EVA= net operating profit after taxes - (capital x cost of capital)
- The critical element in the case is not computation of EVA, which is straightforward. Rather, the critical issues are the decisions regarding the type and number of EVA centers, the appropriate accounting adjustments used in computing the EVA, and the EVA target, the EVA interval, and the design of the bonus bank. There is a detailed description of these issues in the case, and that is where you should focus your discussion and effort.