Q2 b December 2007 EVA question

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June 28, 2020 at 11:48 am #574861
Candy
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Dear tutor,

In the answer they did not include b/f Non cash expense into the Cap Employed figure.

My understanding from the lectures is that we should include the b/f.

Can you please confirm if I have misunderstood?

Thank you in advance
June 28, 2020 at 1:49 pm #574865
Ken Garrett
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Non-cash expenditure was 12 in both 2006 and 2007.

The b/f capital employed as at the start of 2006 (279) has not been affected by this expenditure.

To my mind the b/f capital at the start of 2007 (book value 340) should have had 12 added back to it in respect of the non-cash expenditure during 2006.
June 29, 2020 at 6:57 pm #575391
Candy
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Thank you

Yes I added back the non cash in both NP.

I can see that this is not available for 2006, but I added it to my 340 in 2007 as well as leases and GW – ended up with 418.

If this is to come up in an exam question, should I assume it has been added back already as may have happened in this questinon?
June 30, 2020 at 6:17 am #575399
Ken Garrett
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No. There is no reason to make that assumption. Non-cash expenses would be deducted ro profit in the published accounts, butmshould not be when calculating EVA.
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