Romeo plc produced the following statement of financial position at the end of the third year of trading:An analysis of the underlying records reveals the following: R&D costs relating to the development of a new product in the current year had been written off at a cost of £10 million. However,

Question

Romeo plc produced the following statement of financial position at the end of the third year of trading:

Statement of financial position as at the end of the third year
	£m
ASSETS
Non-current assets
Property	60.0
Computing equipment	90.0
Motor vehicles	[latex]\underline{22.0} [/latex]
[latex]\underline{172.0} [/latex]
Current assets
Inventories	39.0
Trade receivables	53.0
Cash	[latex]\underline{12.0} [/latex]
[latex]\underline{104.0} [/latex]
Total assets	[latex]\underline{276.0} [/latex]
EQUITY AND LIABILITIES
Equity
£1 ordinary shares	60.0
Retained earnings	[latex]\underline{81.0} [/latex]
[latex]\underline{141.0} [/latex]
Non-current liabilities
Loan notes	[latex]\underline{90.0} [/latex]
Current liabilities
Trade payables	[latex]\underline{45.0} [/latex]
Total equity and liabilities	[latex]\underline{276.0} [/latex]

An analysis of the underlying records reveals the following:

R&D costs relating to the development of a new product in the current year had been written off at a cost of £10 million. However, this is a prudent approach and the benefits are expected to last for ten years.
Property has a current value of £200 million.
The current market value of an ordinary share is £8.50.
The book value of the loan notes reflects their current market value.

Required:

Calculate the MVA for the business over its period of trading.

The answer to this question can be found at the back of the book on p. 569.

Accepted Answer

Romeo plc

Adjusted net assets (capital invested)
	£m	£m
Total assets less current liabilities as per the statement of financial position		231.0
Add Property (£200m − £60m)	140.0
R&D (9/10 × £10m)	[latex]\underline{9.0} [/latex]	[latex]\underline{149.0} [/latex]
Adjusted total assets less current liabilities		[latex]\underline{380.0 ^*} [/latex]

* This figure represents the adjusted figure for share and loan capital.

Market value added calculation
	£m
Market value of shares (60m × £8.50)	510.0
Less Capital invested (see above)	[latex]\underline{(380.0)} [/latex]
MVA	[latex]\underline{130.0} [/latex]

Question 11.S-AQ.1: Romeo plc produced the following statement of financial posi...