Question 11.12: Centaur plc has five million shares in issue with a market v...
Centaur plc has five million shares in issue with a market value of £8.40 per share. The company has £14.2 million capital invested and EVA^{\circledR} 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^{\circledR} = \frac{EVA^{\circledR} }{r}
=\frac{ £1.8m}{0.10}
= £18.0m
Value of future growth potential (FGV^{\circledR}) = Business value − (Capital invested +\frac{EVA^{\circledR} }{r})
= (5m × £8.40) − (£14.2m + £18.0m)
= £9.8m
Percentage contribution to business value =(\frac{EVA^{\circledR} }{Business value})× 100\%
=\frac{ £9.8m}{(5m × £8.40)}× 100\%
= 23.3%