Help me please, I don't understand it at all....
Problem 5: Measuring and valuing shareholder's value Juliet PLC produced the following statement of financial position and income statement at the end of the third year of trading ASSETS SM EQUITY & LIABILITIES $M Non-current assets Equity Property 40.0 Share capital 80.0 Machinery & Equipment 80.0 Retained earnings 36.5 Motor vans 18.6 116.5 Marketable Investments 9.0 147.6 Current assets Non-current liabilities Inventories 45.8 Loan notes 80.0 Receivables 64.6 Cash 1.0 Current liabilities 111.4 Trade payables 62.5 Total assets 259.0 Total equity and liabilities 259.0 Income statement for the third year Sales revenue Cost of sales Gross profit $M 231.5 (143.2) 88.3 Wages Depreciation of machinery and equipment R&D costs Allowance for trade receivables Operating Profit or loss (43.5) (14.8) (40.0) (10.5) (20.5) Income from investments 0.6 (19.9) Interest payable Ordinary profit / loss before taxations (0.8) (20.7) Restructuring costs (6.0) Profit / Loss before taxation (26.7) Tax Profit/Loss for the year (26.7 An analysis of the underlying costs reveals the following: 1. R&D costs relate to the development of a new product two years ago. These costs are written off over a two-period year (starting last year). However, this is a prudent approach and the benefits are expected to last for 10 years. 2. The allowance for trade receivables was created this year and the amount is too low. A more realistic figure for the allowance would be $ 12 million. 3. Restructuring costs were incurred in the beginning of the year and are expected to provide benefits for an infinite period. 4. The business has a 6% required rate of return for investors. 5. The capital employed at the end of the year fairly reflects the average capital employed during the year. Requirement 1: Calculate EVA for the business for the third year of trading. Requirement 2: Based on your calculations, would you give a bonus to the CEO or replace him? Justify your answer. Problem 5: Measuring and valuing shareholder's value Juliet PLC produced the following statement of financial position and income statement at the end of the third year of trading ASSETS SM EQUITY & LIABILITIES $M Non-current assets Equity Property 40.0 Share capital 80.0 Machinery & Equipment 80.0 Retained earnings 36.5 Motor vans 18.6 116.5 Marketable Investments 9.0 147.6 Current assets Non-current liabilities Inventories 45.8 Loan notes 80.0 Receivables 64.6 Cash 1.0 Current liabilities 111.4 Trade payables 62.5 Total assets 259.0 Total equity and liabilities 259.0 Income statement for the third year Sales revenue Cost of sales Gross profit $M 231.5 (143.2) 88.3 Wages Depreciation of machinery and equipment R&D costs Allowance for trade receivables Operating Profit or loss (43.5) (14.8) (40.0) (10.5) (20.5) Income from investments 0.6 (19.9) Interest payable Ordinary profit / loss before taxations (0.8) (20.7) Restructuring costs (6.0) Profit / Loss before taxation (26.7) Tax Profit/Loss for the year (26.7 An analysis of the underlying costs reveals the following: 1. R&D costs relate to the development of a new product two years ago. These costs are written off over a two-period year (starting last year). However, this is a prudent approach and the benefits are expected to last for 10 years. 2. The allowance for trade receivables was created this year and the amount is too low. A more realistic figure for the allowance would be $ 12 million. 3. Restructuring costs were incurred in the beginning of the year and are expected to provide benefits for an infinite period. 4. The business has a 6% required rate of return for investors. 5. The capital employed at the end of the year fairly reflects the average capital employed during the year. Requirement 1: Calculate EVA for the business for the third year of trading. Requirement 2: Based on your calculations, would you give a bonus to the CEO or replace him? Justify your
