Histerday, Water and Power Co, released its 2018 annual report on the company's website. While reading the report for her boss, Annie came across everal terms absut which she was unsure. She leaned around the wall of her cubicle and asked her colleague, Tristan, for help. ANNYE: Tristan, do you have a seconid to help me with my reading of Water a Power's annual report? t've come across several unfamiliar 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 Water a. Power's shares," and then in another place, it. uses "Market Valua Added." I've never encountered those terms before. Do you know what they're talking about? TRISTAN:Yes, 1 do. Let's see if we can make these terms make sense by talking through their meaning and their significance to investors. The term book value has several jses. It can refer to a single asset or the company as a whose. When referring to an individual asset, such as a piece of equipment, book value refers to the asset's - i, adjusted for any accumulated depreclation or amortization expense. The value, of difference between these two values, is called the asset's book value. In contrast, when the term refers to the entire company, it means the total value of the company's Wr reported in the firmis ANNIf. That makes sense. So, what makes this value important to investors is that it is walue that can change-but only due to a couple of events, including the ff Treasury stock, the sale of new common of preferred shares, and the Equally important, t change in response to changes in the market prices of the firm's shares. TRISTANi Righti 50 , how useful would a firms book value be for assessing the performance of Water f Rower's inanagement? ANNTE: Well, because Water a Power's book yalue vith changes in the nrarket pnce of the firms shares, the fiems book vaiue reflect manapements efforts to maximize the thareholder wealth and therefore he used to evaluate managsment's perforthance. payment of 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 Water 8 Power's management? ANNIE: Well, because Water \& Power's book value value refect management's efforts to maximize the shareholder wealth and therefore be used to evaluate management's performance. Now, what about " Market Value Added? TRISTAN: During the 1990s, the consulting firm Stern, Stewart a Company developed the concept of Market Value Added, or MVA, to better assess management's performance in maximizing their shareholders' wealth. To achieve this, a firm's MVA is computed as the between (of) the value and the value of Water 8 Power's shareholders' equity OK, now here's a question for you; Compared to the book value, whot is the advantage of the MVA as a means of evaluating management's performance? ANNIE: Well, I would say that because the market value of Water 8 Power's shareholders' equity is calculated by multiplying the shares' yy the number of shares then it wil fluctuate depending on how the market perceives management's performance. A positive assessment will resule in , market price and MVA. TRISTAN: Nicely donel Does this make your readeng of Water \& Power's annual report easier