Thepresent valueof EVA over thehigh-growth period is
=C539.81million.Togettothevalueoftheoperatingassets
of the firm, we add two more components:
1.Thecapitalinvestedinassetsinplaceatthebeginningof
year 1 (current), which is = C946.90 million.
2.ThepresentvalueoftheEVAin perpetuityonassetsin
place in year 5, which is computed as follows:
Note that while the marginal return on capital on new
investmentsis equaltothecost ofcapitalafteryear6,the
existing investments continue to make 19.25%, which is
higherthanthecostofcapitalof6.57%,inperpetuity.The
totalvalue fortheoperating assetsisidenticalto thevalue
obtained using the cost of capital approach.
Cost of Capital versus Excess Return Valuation