Note 1:

In the calculation of VV plcs Z score, you decide to use Altmans Z score model where:

Z = 0.717a + 0.847b + 3.107c + 0.420d + 0.998e

and where:

a = working capital/total assets

b = accumulated retained profits/total assets

c = operating profit/total assets

d = equity/ total liabilities

e = sales revenue/total assets

Vegan Veganto (W) 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 WV plc's most recent financial reports for the year ended 31 March 2022: Sales revenue: 330m; Operating profit: Enil; Working capital (net current assets): 30m; Total assets: 150m; Issued share capital: 30m; Equity: 75m; Total liabilities: 75m. The following information is also available, W's weighted average cost of capital (WACC) is 15%. In the financial year ended 31 March 2022, research and development expenses of 112.5m were charged to W'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. W incurs tax at the rate of 25% of operating profit. Data on the market price per share for W is as follows: 31st March 2022 10.75 31 March 2021 12.50 31st March 2020 16.20 You have been engaged as a Management Consultant by the Board of Directors of WV plc to review the company's performance evaluation system. At present, w ple'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. CONTINUED Page 3 of 10 ACCT3031-WE01 Required: As Management Consultant to Wplc, you are required to review the evaluation system and prepare and present a report for the company's Board of Directors. In order to do so, you decide to: (a) Calculate the company's Z score for 2022 (see Note 1)* (b) Calculate the company's EVA for 2022* *state any assumptions and show all workings (15 marks) (20 marks)