The following information has been collated for one of the divisions of Lade Co: Values at 30
Question:
The following information has been collated for one of the divisions of Lade Co: Values at 30 November 2011:
Book Value ( ksh) Economic value (estimated) Kshs
Total assets (note 1) 1,738,674 2,869,522
Current liabilities 428,255 565,834
Non-current liabilities 727,815 828,944
Results for year to 30 November 2011: ( Ksh)
Profit before interest and tax 329,463
NOPAT 301,500
The company has a target rate of return of 13·5% per annum, and the weighted average cost of capital for the division is estimated to be 14·7% per annum. All borrowing is arranged centrally. An interest rate of 12·6% per annum applies to the most recently arranged loan.
Note 1: The book value of assets includes a receivables allowance of Kshs 17,890. The allowance has also been included in the calculation of the economic value of assets.
Required: For the year to 30 November 2011, calculate the divisional RI and the divisional EVA® and briefly comment on the results of your calculations.
International Financial Reporting And Analysis
ISBN: 9781473766853
8th Edition
Authors: David Alexander, Ann Jorissen, Martin Hoogendoorn