Question 11.A.19: Centaur plc has 5 million shares in issue with a market valu...
Centaur plc has 5 million shares in issue with a market value of £8.40 per share. The business has £14.2 million capital invested and EVA® for the most recent year was £1.8 million. The required return from investors is 10 per cent a year. What is the percentage contribution to the market value of the business arising from future growth?
Assuming no growth, PV of future EVA® = \frac{EVA^{R}}{r} = \frac{£1.8 m}{0.10} = £18.0 m
Value of future growth potential (FGV®) = Business value – \left(Capital invested + \frac{EVA^{R}}{r}\right)
= (5 m × £8.40) – (£14.2 m + £18.0 m)
= £9.8 m
Percentage contribution to business value = \left(\frac{EVA^{R}}{Business value}\right) × 100\%
\frac{£9.8 m}{(5 m × £8.40)} × 100\%
= 23.3%
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