Accounting for Financial Management: EVA/MVA The financial statements reflect historical data, but managers' performance must be evaluated on the basis of -Select- values. To provide this information, financial analysts have developed two measures: Market Value Added (MVA) and Economic Value Added (EVA). 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 Stock price) - Total common equity Shareholder wealth is maximized when this difference is -Select- The - Select a firm's MVA, the better the job management is doing for its shareholders. a Economic Value Added is sometimes called " -Select- 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 pasitive. -Select- can be determined for divisions as well as for the firm as a whole, sa 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 $100 $85 Accounts receivable 275 200 Inventories 375 250 Total current assets $750 $635 Net plant and equipment 2,000 1,490 Total assets $2,750 $2,125 Accounts payable Accruals Notes payable Total current liabilities Long-term debt Common stock Retained earnings Total liabilities and equity $150 75 150 $375 450 $85 50 75 $210 290 1,225 400 $2,125 1,225 700 $2,750 Income Statements: 2018 2017 Sales $2,000 1,250 $1,500 1,000 $500 Operating costs excluding depreciation EBITDA Depreciation and amortization EBIT $750 100 75 $650 62 $425 45 Interest EBT $588 $380 Taxes (40%) 235 152 Net income $353 $228 $53 $48 Dividends paid Addition to retained earnings $300 $180 Shares outstanding 110 110 Price $25.28 $27.78 9.00% WACC Using the financial statements above, what is Rosnan's 2018 market value added (MVA)? Do not round intermediate calculations. Round your answer to the nearest dollar. $ Using the financial statements given earlier, what is Rosnan's 2018 economic value added (EVA)? Do not round intermediate calculations. Round your answer to the nearest cent. $
