Question

7. The relationship between the book value of shareholders' equity and the firm's Market Value Added (MVA) and Economic Value Added (EVA) Yesterday, Extensive Enterprise Inc. released its 2015 annual report on the company's website. While reading the report for her boss, Jia came across several terms about which she was unsure. She leaned around the wall of her cubicle and asked her colleague, Ryker, for help. Aa Aa ia Ryker, do you have a second to help me with my reading of Extensive'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 Extensive'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? Ryker 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 or amortization expense. The the asset's book value. , adjusted for any accumulated depreciation value, or difference between these two values, is called In contrast, when the term refers to the entire company, it means the total value of the company's as reported in the firm's ia That makes sense. So, what makes this value important to investors is that it is value that can change-but only due to a couple of events, including the of Treasury stock, the sale of new common or preferred shares, and the payment change in response to changes in the market of prices of the firm's shares. , Equally important, it 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 with changes in the market price of reflect management's efforts to maximize the the firm's shares, the firm's book value price of the firm's common stock and therefore performance be used to evaluate management's Now, what about "Market Value Added"? Ryker During the 1990s, 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 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 then it will by multiplying the shares' fluctuate depending on how the market perceives management's performance. A negative assessment will result in by the number of shares market price and MVA. Ryker Nicely done! Does this make your reading of Extensive's annual report easier?

Answer 1

1st blank : Historical Value

2nd blank : The Net value

3rd Blank : Shareholder's equity

4th Blank : Balance sheet

5th Blank : Expected Future value

6th Blank : Repurchase

7th Blank : Dividends

8th Blank : will not

9th Blank : Does not change

10th blank : cannot

11th blank : should not

12th blank : difference

13th blank : market value

14th blank : market value

15th blank : Market price

16th blank : Outstanding

17th blank : less