Question 11.A.4: 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?

The blue check mark means that this solution has been answered and checked by an expert. This guarantees that the final answer is accurate.
Learn more on how we answer questions.

Shareholder value will be the total business value less the market value of the loan capital. Hence, shareholder value is:

£m
= $\underline{4,731.8}$	£4,851.8m − £120m
	The proceeds from the sale of the shares to
= $\underline{4,400.0}$	United Pharmaceuticals would yield 400m × £11

Thus, from the point of view of the shareholders of Bortex plc, the sale of the business at the share price mentioned would not increase shareholder value.

Related Answered Questions

Question: 11.E.2

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

Verified Answer:

There are a number of ways in which the accuracy o...

Question: 11.A.11

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® was £1.8 million. The required return from investors is 10 per cent a year.What is the percentage contribution to the market value ...

Verified Answer:

Assuming no growth, PV of future

\text{EVA}...

Question: 11.SE.5

Pisces plc produced the following statement of financial position and income statement at the end of the third year of trading: Statement of financial position (balance sheet) as at the end of the third year ...

Verified Answer:

Pisces plc Adjusted NOPAT £m £m (20.5) Oper...

Question: 11.SE.3

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 as to how a management bonus system could be arranged so as to ensure the longer term is taken into ...

Verified Answer:

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

Question: 11.SE.1

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

Verified Answer:

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

Question: 11.RQ.4

generating a particular level of profits or achieving a particular market share without specifying the level of capital invested can help create such a problem. EVA® can help avoid the problem by focusing on the need to obtain a profitable return on capital invested. ...

Verified Answer:

If businesses are overcapitalised it is probably b...

Question: 11.A.7

What is the EVA® for the second year of the business in Example 11.3? ...

Verified Answer:

EVA

^ {\circledR}

can be calculat...

Question: 11.A.6

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 in order to increase EVA...

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)? ...

Verified Answer:

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? ...

Verified Answer:

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