EBS Plc, an all equity-financed firm, has three strategic business units. The polythene division has capital of 8m and is expected to produce annual returns of 11% for the next five years. Thereafter it will produce annual returns equal to the required rate of return for this risk level of 14%. The paper division has an investment level of 12m and a planning horizon of 10 years. During the planning horizon it will produce a return of 22% compared with a risk-adjusted required rate of return of 15%. The cotton division uses 2m of capital, has a planning horizon of seven years and a required rate of return of 16% compared with the anticipated actual rate of 17% over the first seven years.

1_ Calculate the value of the firm.

2_ Draw a value-creation and performance spread chart

3_ Discuss the advantages and disadvantages in using the Total Shareholder Return (TSR) and Wealth Added Index (WAI) to judge managerial performance.