7. The relationship between the book value of shareholders' equity and the firm's Market Value Added (MVA) and Economic Value Added (EVA) Yesterday, Western Gas & Electric Co, released its 2015 annual report on the company's website. While reading the report for her boss, Annie came across several terms about which she was unsure. She leaned around the wall or her cubicle and asked her colleague, Tristan, for help, ANNIE: Tristan, do you have a second to help me with my reading of Western G&E'S annual report? I've come across several untamilar terms, and I want to make sure that I'm interpreting the data and management's comments correctly For example, one of the footnotes to the financial statements uses the book value of Western G&E's shares," and then in another place, it uses Market Value Added I've never encountered those terms before. Do you know what they're talking about? TRISTAN: Yes, I do. Let's see if we can make these terms make sense by talking through their meaning and their signincance to investors The term book value has several uses. It can refer to a single asset or the company as a whole. When referring to an individual asset, such as a plece of equipment, book value refers to the asset's adjusted for any accumulated depreciation or amortization expense. The value of difference between these two values, scaled the assets book value in contrast, when the term refers to the entire company, it means the total value of the company as reported in the firm's ANNIE: That makes sense. So, what makes this value important to investors is that it is value that can change - but only due to a couple of events, including the of Treasury stock, the sale of new common on preferred shares, and the payment or Equally important change in response to changes in the market prices of the firm shores ANNIE: That makes sense. So, what makes this value important to investors is that it is value that can change--but only due to a couple of events, including the of Treasury stock, the sale of new common or preferred shares, and the payment of .Equally important, it change in response to changes in the market prices of the firm's shares. TRISTAN: Right! So, how useful would a firm's book value be for assessing the performance of Western G&E's management? be used to ANNIE: Well, because Western G&E's book value with changes in the market price of the firm's shares, the firm's book Value reflect management's efforts to maximize the price of the Nim's common stock and therefore evaluate management's performance Now, what about "Market Value Added? TRISTAN During the 1990s, the consulting firm Stern, Stewart & Company developed the concept of Market Value Added, or MVA, to better aness management's performance in maximizing their shareholders' wealth. To achieve this, a firm's MVA is computed as the between (or) the value and the value of Western Ghe's shareholders' equity. OK, now here's a question for your compared to the book value, what is the advantage of the MVA as a means of evaluating managements performance? ANNIE: Well, I would say that because the market value of Western G&E shareholders' equity is calculated by multiplying the shares by the number of shares then it will luctuate depending on how the market perceives management's performance. A negative assessment will result in market price and MVA