VYADERM PHARMACEUTICALS Case (Economic Value Added Calculation for Bonus Payment)

Nayan (P10X05) IIM Ranchi Exchange student

Economic value added Calculation for the Net Operating Profit After Tax Operating Earnings + Capitalization of R&D + Capitalization of Advertizing + Goodwill Amortization added back + Restructuring add-back Net Operating Profit before Taxes (NOPBT) - Taxes Net Operating Profit after Taxes (NOPAT) - Capital Charge @ 11%

Economic Value Added EVA Improvement in the year 2000

Calculation of Bonus for year 2000 Managers Base Salary Bonus Target {(60% of Base Salary (100% based on division EVA)} EVA Improvement Goal EVA Target EVA Interval Manager Base Salary Bonus Target(100% based on division EVA) EVA Performance Calculation of Bonus for year 2000 (I) New Bank Balance for Bonus Payout (II) Bonus Payout in the year 2000 (Answer to Question No 2)

Ending Balance (I - II)

Economic value added Calculation for the Net Operating Profit After Tax Operating Earnings + Capitalization of R&D

+ Capitalization of Advertizing + Goodwill Amortization added back + Restructuring add-back Net Operating Profit before Taxes (NOPBT) - Taxes Net Operating Profit after Taxes (NOPAT) - Capital Charge @ 11%

Economic Value Added EVA Improvement in the year 2001

Bonus Estimation for the year 2001 based on the u Managers Base Salary Bonus Target {(60% of Base Salary (100% based on division EVA)} EVA Improvement Goal EVA Target EVA Interval Manager Base Salary Bonus Target(100% based on division EVA) EVA Performance Calculation of Bonus for year 2001 Beginning Bonus Bank Balance New Bank Balance for Bonus Payout Bonus Payout in the year 2000 (Answer to Question No 3) Ending Balance

student

ulation for the year 2000 1999

2000

42545000 26059400 43666.67 7500000 NIL 76148066.667 7875000 68273066.667 7510037.33

92550000 46555800 48333.33 10000000 Nil 149154133.33 18725000 130429133.33 14347204.67

60763029.333

116081928.67 55318899.33

200000 120000 2150000 5070000 12000000 200000 60% 5.59 671189 671189 (Target Bonus x EVA performance (Target Bonus +50% of Remaining 395594.5 Balance) 275594.50

ulation for the year 2001 2000 92550000 46555800

2001 24694000 16006200

48333.33 10000000 Nil 149154133.33 18725000 130429133.33 14347204.67

31666.67 Data Insufficient Nil 40731866.67 121700 40610166.67 4467118.33

116081928.67

1 based on the underlined condition 200000 120000 2150000 5070000 12000000 200000 60% -5.68 -681389 275594 -405794 NIL as Balance is negative -405794

36143048.33 -79938880.33

1995 1996 1997 1998 1999 Research and Developemt 1067300 ### ### ### 9327000 Expenses as Reported on P& L 0 1995 2134600 2134600 2134600 2134600 2134600 1996 2497400 2497400 2497400 2497400 1997 2922000 2922000 2922000 1998 3418800 3418800 1999 1865400 2000 2000 R&D Amortization under EVA Cumulative R&D Expense(P&L) ### ### ### ### ### Less: Cumulative 2134600 6766600 ### ### ### Amortization(EVA) Capatalized R&D for EVA Calculation of Capital

###

2000

For Calculating Q.3 2001

39000000 Data Insufficient NA NA 2497400 NA 2922000 2922000 3418800 3418800 1865400 1865400 7800000 7800000 18503600 NA 103191000 Data Insufficient 56635200 Data Insufficient

###

16006200

1996

1997

1998

Consumer Advertising Expenses 34000 38000 41000 1996 11333.33 11333.33 11333.33 1997 12666.67 12666.67 1998 13666.67 1999 2000 2000 Advertising Amortization under EVA Cumulative Advertising Expense(P&L)

34000

72000

113000

Less: Cumulative Amortization(EVA) 11333.33 35333.33 73000.00 Capitalized Advertizing for 2000 EVA Calculation of Capital

1999

45000 12666.67 13666.67 15000

158000

2000

For Calculating Q.3 2001

50000 Data Insufficient NA NA 13666.67 NA 15000 15000 16666.67 16666.67 45333.33 NA 208000 Data Insufficient

### 159666.67 Data Insufficient 43666.67

48333.33

31666.67

1996

Goodwill Amortization

1997

1998

1999

0 2500000 5000000 7500000

For Calculating Q.3 2000 2001

### Data Insufficient