Question 11.Act.5: What is the shareholder value figure for the business in Exa...

Financial Management for Decision Makers

What is the shareholder value figure for the business in Example 11.2? Would the sale of the shares at £11 per share really add value for the shareholders of Bortex plc?

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Question: 11.Act.3

Libra plc has an estimated terminal value (representing cash flows beyond the planning horizon) of £100 million. What is the present value of this figure assuming a discount rate of 12 per cent and a planning horizon of: (a) 5 years (b) 10 years (c) 15 years? (Hint: You may find it helpful ...

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The answers are: (a) £100m × 0.567 = £56.7 million...

Question: 11.5

Cosmo plc began trading ten years ago. It has 2 million £1 ordinary shares in issue that have a current market value of £5 per share. These shares were issued at their nominal value when the business was founded. The business also has £6 million 10 per cent loan notes. The book value of the loan ...

Verified Answer:

The market value added can be calculated as follow...

Question: 11.4

Leo Ltd has just been formed and has been financed by a £20 million issue of share capital and a £10 million issue of loan notes. The proceeds of the issue have been invested in non-current assets with a life of three years and during this period these assets will depreciate by £10 million per year ...

Verified Answer:

The SVA approach to determining shareholder value ...

Question: 11.1

Sagittarius plc generated sales of £220 million during the year and has an operating profit margin of 25 per cent of sales. Depreciation charges for the year were £8.0 million and the cash tax rate for the year was 20 per cent of operating profit. During the year, £11.3 million was invested in ...

Verified Answer:

The free cash flows are calculated as follows: ...

Question: 11.3

Scorpio plc was established two years ago and has produced the following statement of financial position and income statement at the end of the second year of trading. Discussions with the finance director reveal the following:1. Marketing costs relate to the launch of a new product. The benefits ...

Verified Answer:

The first step in calculating

EVA^\circledR...

Question: 11.Act.9

Can you work out the EVA® for the second year of Scorpio plc in Example 11.3 ? ...

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EVA^\circledR

can be calculated as ...

Question: 11.Act.10

Calculate the EVA margin for the second year of Scorpio plc in Example 11.3. ...

Verified Answer:

The ratio is:

EVA margin=\frac{£8.9m}{£148...

Question: 11.Act.8

What can managers do in order to increase EVA®? (Hint: Use the formula shown above as your starting point.) ...

Verified Answer:

The formula suggests that to increase

EVA^\...

Question: 11.S-AQ.1

Romeo plc produced the following statement of financial position at the end of the third year of trading:An analysis of the underlying records reveals the following: R&D costs relating to the development of a new product in the current year had been written off at a cost of £10 million. However, ...

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Romeo plc Adjusted net assets (capital investe...

Question: 11.RQ.4

It has been argued that many businesses are overcapitalised. If this is true, what may be the reasons for businesses having too much capital and how can EVA® help avoid this problem? ...

Verified Answer:

If businesses are overcapitalised it is probably b...