Ahmed Trucking Ltd. was recently formed and issued 80 million shares at $0.50 each and obtained loans of $24 million. The business used the proceeds to purchase the remaining leases on some commercial properties that are rented out to small businesses. The leases will expire in four years' time and during that period the annual operating profits are expected to be $12 million each year. At the end of the four years, the business will be wound up and the leases will have no residual value.
The rate of return required by investors is 12%. Round present value factors to two decimals.
Required:
Calculate the expected shareholder value generated by the business over the four years, using:
(a) The SVA approach
(b) The EVA approach
Round present value factors to two decimals.