Question 11.A.11: 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 for the most recent year, EVA ^{\circledR} 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 \text{EVA}^{\circledR}=\frac{\text{EVA}^{\circledR}}{r}
=\frac{£1.8m}{0.10}
= £18.0m
Value of future growth potential (\text{FGV}^{\circledR}) =\text{Business value} -\left(\text{Capital invested} +\frac{\text{EVA}^{\circledR}}{r}\right)
= (5m × £8.40) − (£14.2m + £18.0m)
= £9.8m
Percentage contribution to business value =\left(\frac{\text{FGV}^{\circledR}}{\text{Business value}}\right)×100\%
=\frac{£9.8m}{(5m × £8.40)}×100\%
= 23.3%