Business, 02.06.2021 22:30 karencbetancourt

Financial statements reflect only the book values of the data that analysts use to evaluate a company’s performance. To incorporate market values, two additional performance measures were developed—market value added (MVA) and economic value added (EVA). The EVA metric effectively measures the amount of shareholder wealth that the firm’s management has the firm’s value during a time period. If EVA is then management has increased value. Which performance measure evaluates to what extent managers perform their primary task—that is, to create shareholder wealth? Economic value added Market value added Consider the following case: Last year, Jackson Tires reported net sales of $60 million and total operating costs (including depreciation) of $39 million. It had $95 million of investor-supplied capital, with an after-tax cost of 7.5%. If the company’s tax rate is 25%, how much value did its management create or lose for Jackson Tire during the year? $37.875 million $64.125 million $8.625 million $1.509 million EVA calculates the value added to a firm in a given year. Does that mean that a firm’s MVA is the sum of all the EVAs generated by the firm during its life? (Note: Stern Stewart copyrighted the terms MVA and EVA. Other firms use different terms for these concepts, but MVA and EVA are most commonly used in practice.)

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