The ((((((HIGHLIGHTED PARTS)))))))

9/6/2020 Aplia: Student Question 7. The relationship between the book value of shareholders' equityand the firm's Market Value Added (MVA) and Economic Value Added (EVA) Yesterday, Atherton Corp. released its 2018 annual report on the company's website. While reading the report for her boss, Mia came across several terms about which she was unsure. She leaned around the wall of her cubicle and asked her colleague, Josh, for help. MIA: Josh, do you have a second to help me with my reading of Atherton's annual report? I'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 Atherton's shares," and then in another place, it uses "Market Value Added." I've never encountered those terms before. Do you know what they're talking about? JOSH: Yes, I 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 uses. It can refer to a single asset or the company as a whole. When referring to an individual asset, such as a piece of equipment, book value refers to the asset's historical value or original purchase price , adjusted for any accumulated depreciation or amortization expense. The net _value, or 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 shareholders' equity as reported in the firm's balance sheet MIA: That makes sense. So, what makes this value important to investors is that it is Expected Future/ historical value that can change-but only due to a couple of events, including the sale / repurchaseof Treasury stock, the sale of new common or preferred shares, and the payment of IN teRest Divider Equally important , it Will / will Not change in response to changes in the market prices of the firm's shares. JOSH: Right! So, how useful would a firm's book value be for assessing the performance of Atherton's management? MIA: Well, because Atherton's book value changes/ does Notchance with changes in the market price of the firm's shares, the firm's book value CONNOT/ COWreflect management's efforts to maximize the shareholder wealth and therefore Should / Should Not be used to evaluate management's performance. Now, what about "Market Value Added"? JOSH: During the 1990s, the consulting firm Stern, Stewart & Company developed the concept of Market https://aplia.apps.ng.cengage.com/af/servlet/quiz?quiz_action=takeQuiz&quiz_probGuid=Q4PLCOA801010000005e7d6c60090000&ctx=sholeman-00... 1/2