14. Value added to a firm A traditional (ratio-based) financial statement analysis, which relies almost exclusively on book value-based accounting information, cannot directly assess the relationship between a company's financial performance and shareholder wealth (as measured by the market price of the firm's common stock). To address this deficiency, Stern Stewart & Company developed two additional performance indicators: Market Value Added (MVA) and Economic Value Added (EVA). The MVA measures the amount of wealth generated by the firm since it was created, while the EVA measures the amount of shareholder wealth that the firm's management has added to the firm's value during a period of time. If the EVA is positive, then management has added value, while a negative value indicates that the firm's managers reduced the firm's value and shareholders might have earned more value by investing in some other investment with the same level of risk. The EVA metric effectively measures the amount of shareholder wealth that the firm's management has during a specific period of time. A EVA value indicates that the firm's managers have reduced the firm's value, and shareholders might have earned more value by investing in some other investment with the same risk level. Consider the following case: Last year, Jackson Tires reported net sales of $40 million and total operating costs (including depreciation) of $26 million. It had $75 million of investor-supplied capital, with an after-tax cost of 7.5%. If the company's tax rate is 40%, how much value did its management create or lose for Jackson Tire during the year? $39.375 million $2.775 million $0.902 million $18.375 million According to Jackson Tires's balance sheet, the firm has $105 million of total common equity (common stock plus retained earnings) and 15 million shares of common stock outstanding. If the company's current stock price is $25.00, then what is Jackson Tires's current market value added (MVA)? $372 million $230 million $270 million $324 million