RYKER: Right! So$,$ how useful would a firm's book value be for assessing the performance of Extensive's management?

JIA: Well, because Extensive's book value does not change $-$ with changes in the market price of the firm's shares, the firm's book value

cannot $$ reflect management's efforts to maximize the shareholder wealth and therefore should not grad be used to evaluate

management's performance.

Now, what about "Market Value Added"?

RYKER: During the $1990$s$,$ the consulting firm Stern, Stewart & 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 Extensive's shareholders' equity.

OK$,$ now here's a question for you: Compared to the book value, what is the advantage of the MVA as a means of evaluating management's

performance?

JIA: Well, I would say that because the market value of Extensive's shareholders' equity is calculated by multiplying the shares'

by the number of shares

$,$ then it will fluctuate depending on how the market perceives management's

performance. A negative assessment will result in

market price and MVA.

RYKER: Nicely done! Does this make your reading of Extensive's annual report easier?