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. Part II: Objective questions: : Q1. The Summary financial information for the Gamma Group is as follows: . Income statements/financial information: 2016 2017 Revenue Profit before tax Income tax expense Profit for the period Dividends 400 96 450 (29) 28.8 67 (23) (35) 4.ob 82 (27) Retained earnings
.Balance sheets; 2016 $m 2017 $m Non-current assets Current assets 160 180 340 180 215 395 Financed by: Total equity Long-term debt 270 325 70 70 340 395
Other information is as follows: .(1) Capital employed at the end of 2015 amounted to $279m. (2) The Gamma Group had non-capitalized leases valued at $16m in each of the years 2015 to 2017 which were not subject to amortization. (3) Amortization of goodwill amounted to $5m per year in both 2016 and 2017. The amount of goodwill written off against reserves on acquisitions in years prior to 2016 amounted to $45m. (4) The Groups pre-tax cost of debt was estimated to be 10 per cent. (5) The Groups cost of equity was estimated to be 16 per cent in 2016 and 18 per cent in 2017.
(6) The target capital structure is 50 per cent equity, 50 per ce . debt. (7) The rate of taxation is 30 per cent in both 2016 and 2017. . (8) Economic depreciation amounted to $40m in 2016 and $45m in 2017. These amounts were equal to the depreciation used for tax purposes and depreciation charged in the income statements. (9) Interest payable amounted to Sóm per year in both 2016 and 2017 ewpanse (10) Other non-cásh expenses amounted to $12m per year in both 2016 and 2017
. (a) Stating clearly any assumptions that you make, estimate the economic value added (EVATM) of the Gamma Group for both 2016 and 2017 and comment briefly on the performance the Group.
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Answer #1

EVA: NOPAT-(Capital Invested*WACC) $ Million 2016 Revenue Profit Before Tax Income Tax Expense Profit for the Period Dividends Retained Earnings 2017 400.00 450.00 96.00 117.00 35.00 82.00 27.00 55.00 29.00 67.00 23.00 44.00 NOPAT Calculation Profit before tax Goodwill amortized Non Cash Expense Taxable profit for NOPAT Tax at 30% NOPAT 96.00 117.00 5.00 12.00 134.00 40.20 Add: 5.00 12.00 113.00 33.90 79.10 Less: 93.80A Capital Employed Calculation Opening Capital employed Non capitalized leases Goodwill amortized Capital Employed Retained earnings Total 279.00 16.00 45.00 384.00 Add: Add: 5.00 340.00 389.00 B 44.00 384.00 WACC 16% 18% C EVA 24.7023.78 A-(B*C)

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