Question

1. The results for the last year of Bola plc are shown below:

	£ ‘000s
Profit before tax and interest	400,000
Interest expense	40,000
Profit before tax	360,000
Tax at 20%	72,000
Profit after tax and interest	288,000

There is no significant difference between economic depreciation and accounting depreciation

Amortisation of goodwill amounted to £2,500,000 in the year. The accumulated amortisation at the beginning of the year was £4,000,000

£900,000,000 capital employed at the start of the year

£120,000 accrued expenses at the start of the year, £200,000 at the end

£1,250,000 provision for doubtful debts at the start of the year, £1,100,000 at the end

Weighted average cost of capital is 7.5%

Required

Calculate the Economic Value Added, and discuss the aims of the approach and the reasons for the adjustments made.

Answer 1