Question 11.A-S-Q.1: Romeo plc produced the following statement of financial posi...
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
\begin{matrix}&£m\\\textbf{ASSETS}\\\textbf{Non-current assets}\\Property&60.0\\Computing\ equipment&90.0\\Motor\ vehicles&\underline{22.0}\\&\underline{172.0}\\&£m\\\textbf{Current assets}\\Inventories&39.0\\Trade receivables&53.0\\Cash&\underline{12.0}\\&\underline{104.0}\\&\underline{276.0}\\\textbf{Total assets}\\\textbf{EQUITY AND LIABILITIES}\\\textbf{Equity}\\£1\ ordinary\ shares&60.0\\Retained\ earnings&\underline{81.0}\\&\underline{141.0}\\\textbf{Non-current liabilities}\\Loan\ notes&\underline{90.0}\\\textbf{Current liabilities}\\Trade\ payables&\underline{45.0}\\\textbf{Total equity and liabilities}&\underline{276.0}\end{matrix}
An analysis of the underlying records reveals the following:
1 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 Property has a current value of £200 million.
3 The current market value of an ordinary share is £8.50.
4 The book value of the loan notes reflects their current market value.
Required:
Calculate the MVA for the business over its period of trading.
Romeo plc
Adjusted net assets (capital invested)
^\starThis figure represents the adjusted figure for share and loan capital.
Market value added calculation
\begin{matrix}&£m\\Market\ value\ of\ shares\ (60m \times £8.50)&510.0\\Less\ Capital\ invested\ (see above)&\underline{(380.0)}\\\textbf{MVA}&\underline{130.0} \end{matrix}