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

Question

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]
	£m
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:
1[latex] [/latex] 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.
2[latex] [/latex] Property has a current value of £200 million.
3[latex] [/latex] The current market value of an ordinary share is £8.50.
4[latex] [/latex] The book value of the loan notes reflects their current market value.
Required:
Calculate the MVA for the business over its period of trading.

Accepted Answer

Romeo plc

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]
	£m
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]

* 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]

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)	$\underline{9.0}$	$\underline{149.0}$
Adjusted total assets less current liabilities		$\underline{380.0^*}$

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

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