Question
In: Finance
Define the terms Market Value Added (MVA) and Economic Value Added (EVA), explain how each is...
Define the terms Market Value Added (MVA) and Economic Value Added (EVA), explain how each is calculated, and differentiate between them
Solutions
Expert Solution
MVA can be defined as the amount of wealth that a company is able to create for its stakeholders. EVA, on the other hand, can be defined as that financial measurement of return earned by a company that is in excess of the amount that the company needs to earn to appease shareholders.
MVA is computed by subtracting book value of shareholder’s equity from the market value of shares. Thus MVA = market value of shares – book value of shareholder’s equity. EVA is computed by using the following formula: EVA = NOPAT (net operating profit after tax) – c*Capital. In this equation c* is the cost of capital.
The difference between MVA and EVA is that EVA makes use of cost of capital and hence is a performance indicator. MVA, on the other hand, is just the difference between the current value of the company on the market and the initial contributions made by its investors and hence is not a performance metric or a performance indicator.
jeff jeffy answered 8 months agoRelated Solutions
What is Economic Value Added (EVA)? What is Return on Invested Capital (ROIC)? How are these...
What is Economic Value Added (EVA)? What is Return on Invested
Capital (ROIC)? How are these two connected and what do they
measure?
Illustrate the advantages of the economic value added (EVA) over the return on assets (ROA) as...
Illustrate the advantages of the economic value added (EVA) over
the return on assets (ROA) as measure of financial performance.
Successively, explain why, according to some scholars, the EVA
measure may induce short-sightedness of managers. Finally, discuss
how the EVA measure can be used in firm valuation.
1a) Explain the concept of market value added, economic value added and future growth value b)...
1a) Explain the concept of market value added,
economic value added and future growth value
b) A project has a net present value of zero, what return is earned
on this project when the discounting rate of 15%?.Explain your
answer
c) Demonstrate how supply and demand equations can be derived using
the concept of elasticity.
d) in oligopoly, game theory can be used to explain the behaviour
if firms . explain how firms can end up in a suboptimal equilibrium...
Please do some research on the internet to learn about EVA (Economic Value Added), which is...
Please do some research on the internet to learn about EVA
(Economic Value Added), which is another tool to measure
performance. First describe where you believe EVA is different from
the Residual Value method.
Next please describe a specific situation, where performance
measurement is needed. This can either be a real life scenario that
you recall from your workplace or having learned about in the news,
or a scenario that you are making up. Then pick one tool (EVA,
Residual...
Portia Products Inc. has been asked by its shareholders to calculate the economic value added (EVA)...
Portia Products Inc. has been asked by its shareholders to
calculate the economic value added (EVA) for the current year.
Portia's controller has the following information available:
$1,600,000 $5,200,000 $2,800,000 $2,400,000
Prior to beginning work on this discussion, please read about the Economic Value Added® (EVA®) and...
Prior to beginning work on this discussion, please read about
the Economic Value Added® (EVA®) and the Balanced Scorecard
management systems on the websites of the Corporate Finance
Institute (Links to an external site.) (CFI) and the Balanced
Scorecard Institute (Links to an external site.) (BSI)
respectively. The consulting firm Stern Value Management designed
the EVA® and the Palladium Group designed the Balanced Scorecard as
breakthrough performance measures to rank ordering processes for
investments and help clients create value. Form...
For the company Coca-cola: a. calculate Economic Value Added (EVA) over the most recent annual period....
For the company Coca-cola:
a. calculate Economic Value Added (EVA) over the most recent
annual period. Assume a 10 percent cost of capital and explain your
results.
b. estimate the firm’s expected growth rate using the Gordon
Growth Model and an expected return on the company’s stock of 10%.
Compare these results with a close competitor.
c. estimate the firms’ weighted average cost of capital (WACC)
after taxes. Use the capital asset pricing model (CAPM) to estimate
the cost of...
T/F question 1,A company forecast to have zero economic value added (EVA) forever, will be trading...
T/F question
1,A company forecast to have zero economic value added (EVA)
forever, will be trading at
EV/Capital ratio equal to one. (All else equal.)
2,In the context of relative valuation, it makes sense to use
the equation PB = 3
−
(2
× β
)
to adjust a company's PB ratio for differences in
β
. (Assuming statistical significance.)
3,In practice, we can find a firm's net profit margin by
dividing the firm's PS ratio by the
firm's PB...
Calculating Weighted Average Cost of Capital and Economic Value Added (EVA) Ignacio, Inc., had after-tax operating...
Calculating Weighted Average Cost of Capital and Economic Value
Added (EVA)
Ignacio, Inc., had after-tax operating income last year of
$1,197,000. Three sources of financing were used by the company: $2
million of mortgage bonds paying 4 percent interest, $4 million of
unsecured bonds paying 6 percent interest, and $10 million in
common stock, which was considered to be relatively risky (with a
risk premium of 8 percent). The rate on long-term treasuries is 3
percent. Ignacio, Inc., pays a...
Calculating Weighted Average Cost of Capital and Economic Value Added (EVA) Ignacio, Inc., had after-tax operating...
Calculating Weighted Average Cost of Capital and Economic Value
Added (EVA)
Ignacio, Inc., had after-tax operating income last year of
$1,195,500. Three sources of financing were used by the company: $2
million of mortgage bonds paying 4 percent interest, $4 million of
unsecured bonds paying 6 percent interest, and $10 million in
common stock, which was considered to be relatively risky (with a
risk premium of 8 percent). The rate on long-term treasuries is 3
percent. Ignacio, Inc., pays a...
ADVERTISEMENT
ADVERTISEMENT
Latest Questions
- 1. Consider the following nuclides: &
- In general, teams can be described three ways. Name and define each.
- JAVASCRIPT: Please create an array of student names and another array of student grades. - Create...
- Topic - Construction: Structural, loads, tension 1.) Explain why pure tension members are the most efficient...
- Procter and Gamble (PG) paid an annual dividend of $ 1.62$1.62 in 2009. You expect PG...
- locate a recent case of online child pornography. Write a summary of the incident and describe...
- #Python 5. Write function called evaluate() that evaluates the following Python expressions or assignments as specified:...
ADVERTISEMENT