The calculation of a firm's Market Value Added (MVA) and EconomicValue Added (EVA)

Rafael, your newly appointed boss, has tasked you with evaluating the following financial data for Atherton Corp. to determine how Athertons value has changed over the past year. The investment firm for which you work will make a positive (or buy) recommendation to its investing clients if Athertons value has increased over the past year, a neutral (or hold) recommendation if the value has remained constant, or a negative (or sell) recommendation if the value has decreased. He has recommended that you use several metrics to ascertain how the firms value has changed, and he has provided you with the following income statement and balance sheet.

Atherton Corp. Income Statement January 1 - December 31, Year 2
	Year 2	Year 1
Sales	$3,150,000	$3,000,000
Expenses11	2,520,000	2,460,000
EBITDA	$630,000	$540,000
Depreciation and amortization expense	110,250	105,000
EBIT	$519,750	$435,000
Interest expense	94,500	75,000
EBT	$425,250	$360,000
Tax expense (40%)	170,100	144,000
Net income	$255,150	$216,000
Common dividends	$153,090	$129,600
Addition to retained earnings	$102,060	$86,400
11Excludes depreciation and amortization

Atherton Corp. Balance Sheet December 31, Year 2
Assets:	Year 2	Year 1
Cash and cash equivalents	$239,400	$171,000
Receivables	798,000	570,000
Inventory	1,396,500	997,500
Current assets	$2,433,900	$1,738,500
Net fixed assets	1,556,100	1,111,500
Total current assets	$3,990,000	$2,850,000
Liabilities and Equity:
Accounts payable	$598,500	$427,500
Accruals	389,025	277,875
Notes payable	837,900	598,500
Total current liabilities	$1,825,425	$1,303,875
Long-term debt	768,075	548,625
Total liabilities	$2,593,500	$1,852,500
Common stock ($1 par)	279,300	199,500
Retained earnings	1,117,200	798,000
Total equity	$1,396,500	$997,500
Total liabilities and equity	$3,990,000	$2,850,000
Shares outstanding	279,300	199,500
Weighted average cost of capital	7.98%	7.30%

To facilitate your analysis, complete the following table, and use the results to answer the related questions. (Note: Round all percentage change answers to two decimal places. If a dollar value is below $100, round your answer to two decimal places. If your answer is negative use a minus (-) sign.)

Company Growth and Performance Metrics
Metric	Year 2	Year 1	Percentage Change
	General Metrics
Sales	$3,150,000	$3,000,000	%
Net income	$255,150	$216,000	%
Net cash flow (NCF)	$	$321,000	%
Net operating working capital (NOWC)	$1,446,375	$	%
Earnings per share (EPS)	$	$1.08	%
Dividends per share (DPS)	$0.55	$	%
Book value per share (BVPS)	$	$5.00	0.00%
Cash flow per share (CFPS)	$	$	-18.63%
Market price per share	$21.23	$19.75	%
MVA Calculation
Market value of equity	$	$	50.49%
Book value of equity	$1,396,500	$997,500	%
Market Value Added (MVA)	$	$2,942,625	%
EVA Calculation
Net operating profit after-tax (NOPAT)	$311,850	$	%
Investor-supplied operating capital	$	$	40.00%
Weighted average cost of capital	7.98%	7.30%
Dollar cost of capital	$	$	53.04%
Return on invested capital (ROIC)	%	%	-14.63%
Economic Value Added (EVA)	$72,360	$	%

Using the change in Athertons EVA as the decision criterion, which type of investment recommendation should you make to your clients?

A sell recommendation

A hold recommendation

A buy recommendation

Which of the following statements are correct? Check all that apply.

Other things remaining constant, Athertons EVA will increase when its ROIC exceeds its WACC.

For any given year, one way to compute Athertons EVA is as the difference between its NOPAT and the product of its operating capital and its weighted average cost of capital.

An increase in the number of common shares outstanding must increase the market value of the firms equity.

Athertons net income is growing at a rate greater than its sales. This could imply that either its revenues are growing more quickly than its expenses or that management is being effective in managing its costs while achieving the reported growth in sales. Other things remaining constant, either event should increase the value of the firm.

Athertons NCF is calculated by adding its annual depreciation and amortization expense to the corresponding years EBITDA