Financial statements reflect only the book values of the data that analysts use to evaluate a companys performance. To incorporate market values, two additional performance measures were developedmarket value added (MVA) and economic value added (EVA).

The EVA metric effectively measures the amount of shareholder wealth that the firms management has during a specific period of time. A EVA value indicates that the firms managers have reduced the firms value, and shareholders might have earned more value by investing in some other investment with the same risk level.

Which performance measure evaluates the amount by which profits exceed or fall short of the cost of capital in any one period?

Market value added

Economic value added

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 companys tax rate is 25%, how much value did its management create or lose for Jackson Tire during the year?

$24.375 million

$50.625 million

$0.853 million

$4.875 million

According to Jackson Tiress balance sheet, the firm has $105 million of total common equity (common stock plus retained earnings). The firm has 15 million shares of common stock outstanding, and the current stock price is $25.00 What is Jackson Tiress current MVA?