Reference no: EM133179235
Question - Vegan Veganto (VV) is an innovative vegan food company, established in 2018 by two enthusiastic entrepreneurs, Josh Zhang and Nancy Cook. The following figures have been extracted from a draft of VV plc's most recent financial reports for the year ended 31 March 2022:
Sales revenue: £330m;
Operating profit: £nil;
Working capital (net current assets): £30m;
Total assets: £150m;
Issued share capital: £30m;
Equity: £75m;
Total liabilities: £75m.
The following information is also available,
VV's weighted average cost of capital (WACC) is 15%.
In the financial year ended 31st March 2022, research and development expenses of £112.5m were charged to VV's draft income statement, although the Technical Director contends that these expenses related to a product that should provide equal benefit to the firm in the financial years ending 31st March 2022, 2023 and 2024.
Total assets included marketable investments of £10m
The allowance for doubtful debts, included in the income statement for 2022 as £9m, was calculated on a very conservative basis. A more realistic estimate would be £4m.
VV incurs tax at the rate of 25% of operating profit.
Data on the market price per share for VV is as follows:
31st March 2022 £10.75
31st March 2021 £12.50
31st March 2020 £16.20
You have been engaged as a Management Consultant by the Board of Directors of VV plc to review the company's performance evaluation system. At present, VV plc's business performance measurement system is based on the calculation of Z scores and economic value added (EVA). However, they are considering adding a limited range of key performance indicators and corporate social responsibility measures.
Required - Calculate the company's EVA for 2022 (*state any assumptions and show all workings).
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