Accounting for Financial Management: EVA/MVA The financial statements reflect historical data, but managers' performance must be evaluated on the basis of -Select- have developed two measures: Market Value Added (MVA) and Economic Value Added (EVA). values. To provide this information, financial analysts Market Value Added represents the difference between the money stockholders have invested in the firm versus the cash they could receive if the firm were sold. The equation for MVA is: MVA (Shares outstanding x Stock price) - Total common equity Shareholder wealth is maximized when this difference is Select Economic Value Added is sometimes called "-Select- The Select- a firm's MVA, the better the job management is doing for its shareholders. and it is closely related to MVA. The equation for EVA is EVA NOPAT- (Total net operating capital) (WACC) EVA differs from invested capital is equal to the sum of notes payable, long-term debt, and total common equity. EVA differs from -Select- because EVA has a deduction for the cost of equity. Positive EVA on an annual basis helps ensure that MVA is also positive. Select can be determined for divisions as well as for the firm as a whole, so it is useful for establishing reasonable compensation for divisional managers as well as top company officers. Quantitative Problem: Rosnan Industries' 2018 and 2017 balance sheets and income statements are shown below. All of the balance of Cash and Equivalents is an operating asset. Balance Sheets: 2018 2017 Cash and equivalents Accounts receivable Inventories Total current assets Net plant and equipment Total assets Accounts payable Accruals Notes payable Total current liabilities $100 275 375 $750 2,000 $2,750 $150 75 150 $375 TA $85 200 250 $635 1,490 $2,125 $85 50 75 $210 200 debt 450 Common stock 1,225 Retained earnings Total liabilities and equity 700 $2,750 2018 Sales $2,000 Operating costs excluding depreciation 1,250 EBITDA $750 Depreciation and amortization 100 EBIT $650 Interest 62 EBT $588 $380 Taxes (40%) 235 152 Net Income $353 $228 Dividends paid $53 $48 Addition to retained earnings $300 $180 Shares outstanding 180 160 $20.83 Price $18.33 12.00% WACC Using the financial statements above, what is Rosnan's 2018 market value added (VA)? Do not round intermediate calculations. Round your answer to the nearest dollar S Using the financial statements given earlier, what is Rosnan's 2018 economic value added (EVA)? Do not round intermediate calculations. Round your answer is the nearest cent Income Statements: 290 1,225 400 $2,125 2017 $1,500 1,000 $500 75 $425 45