(c) Based on your EVATM calculations in part (a), do you think MG has generated shareholder value? In your answer, discuss the concept of shareholder value M provide two (2) recommendations to Mr Train for how MG could enhance its shareholder value. [8 marks] ll DO NOT WRITE BEYOND THIS LINE (b) Based on your ROE calculation in part (a), what can Mr Train conclude about the performance of MG? In your response, discuss three (3) disadvantages of this measure (relative to EVATM). [8 marks] QUESTION THREE [20 MARKS] Major Gardiner (MG) is a specialty toy manufacturing company. As a new business, MG has been growing strongly and, based on its ROE calculation, it has also been exceeding its required return on equity of 15%. Michael Train, CEO of MG, has just attended an educational seminar on shareholder value. He would now like to use economic value added (EVA) to measure whether the company has been generating shareholder value. To calculate this measure, the following information has been extracted from MG's accounting system: 5 Net prot after interest and tax 22,000 Interest expense 5,000 Research and development expense 15,000 Shareholder's equity 105,000 Short term debt 29,000 Long term debt 110,000 For the purpose of calculating EVA, Ms Kalinda (CFO of MG) has had her nance team provide the following information: - Tax rate is 30% (assume tax expense is tax paid for EVA calculation) - Short term debt before tax interest rate is 8% - Long term debt before tax interest rate is 7% In addition, Ms Kalinda believes that R&D at MG benefits the future. As such, she has stated that she believes the entire R&D budget should be treated as an asset. She has provided the following information on the economic value and use of R&D from an EVATM perspective. The gross value of capitalised R&D for MG is $150,000, the accumulated R&D amortisation (pre-2015) is $75,000 and the R&D amortisation expense for 2015 is $43,000. Required (a) Based on the above information, calculate the following: - i) ROE (use Net Profit after Interest and Tax) - ii) Economic Value Added (EVATM) [4 marks]