Question 11.A.15: It was mentioned earlier that the EVA^® generated during a p...

Financial Management for Decision Makers

It was mentioned earlier that the EVA^® generated during a period is rarely reported to shareholders. Why might this be a drawback for implementing a EVA^®-based bonus scheme?

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Question: 11.SE.4

Virgo plc is considering introducing a system of EVA^® and wants its managers to focus on the longer term rather than simply focus on the year-to-year EVA^® results. The business is seeking your advice on how a management bonus system could be arranged so as to ensure that the longer term is taken ...

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Virgo plc There is no single correct answer to thi...

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? ...

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If businesses are overcapitalised it is probably b...

Question: 11.SE.6

Pisces plc produced the following statement of financial position and income statement at the end of the third year of trading: ...

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Pisces plc Adjusted NOPAT £m £m Operating...

Question: 11.SE.2

Aquarius plc has estimated the following free cash flows for its five-year planning period: ...

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Aquarius plc There are a number of ways in which t...

Question: 11.A.19

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 ...

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Assuming no growth, PV of future EVA® =

\fr...

Question: 11.RQ.3

Should managers take changes in the total market value of the shares (that is, share price × number of shares issued) over time as an indicator of shareholder value created (or lost)? ...

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The problem with taking changes in the market valu...

Question: 11.RQ.2

Why is MVA not really suitable as a tool for internal management purposes? ...

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Two problems with the use of MVA as a tool for int...

Question: 11.RQ.1

How might the directors’ attitude towards risk be affected by the business offering them share options? ...

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The directors’ attitude towards risk may be affect...

Question: 11.A.24

From the business viewpoint, is there a potential disadvantage to this feature of PSPs? ...

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Directors can still be rewarded despite a fall in ...

Question: 11.A.23

Can you think of any circumstances under which re-issuing share options at a lower price to directors might be justified? ...

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By ‘re-pricing’ options in this way, it may re-inc...