Aries plc was recently formed and issued 40 million shares of £0.50 at par (ie £20 million in total) and £12 million loan notes. The company used the proceeds from the equity issues to purchase the remaining lease on some commercial properties for £32 million that are rented out to small businesses. The lease will expire in four years and during that period annual operating profits are expected to reach £12m each year. At the end of the four years, the business will be liquidated and the lease will have no residual value. The rate of return required by investors is 10 percent.

 Required

Calculate the expected shareholder value generated by the business over the four years, using:

The VAS approach

The EVA Approach

Answer rating: 100% (QA)

Using the VAS Approach Calculate the present value of the lease PV of Lease Annual Operating Profit ... View the full answer