Which of the following statements is CORRECT? Question 3 options: MVA stands for

Question

Which of the following statements is CORRECT?

Question 3 options:

MVA stands for market value added, and it is defined as follows:
MVA = (Shares outstanding)(Stock price) + Book value of common equity.

The primary difference between EVA and accounting net income is that when net income is calculated, a deduction is made to account for the cost of common equity, whereas EVA represents net income before deducting the cost of the equity capital the firm uses.

MVA gives us an idea about how much value a firm’s management has added during the last year.

EVA gives us an idea about how much value a firm’s management has added over the firm’s life.

EVA stands for economic value added, and it is defined as follows:
EVA = NOPAT – (Investor-supplied oper. capital)(AT cost of capital %)

MVA stands for market value added, and it is defined as follows:
MVA = (Shares outstanding)(Stock price) + Book value of common equity.

The primary difference between EVA and accounting net income is that when net income is calculated, a deduction is made to account for the cost of common equity, whereas EVA represents net income before deducting the cost of the equity capital the firm uses.

MVA gives us an idea about how much value a firm’s management has added during the last year.

EVA gives us an idea about how much value a firm’s management has added over the firm’s life.

EVA stands for economic value added, and it is defined as follows:
EVA = NOPAT – (Investor-supplied oper. capital)(AT cost of capital %)

Explanation / Answer

Which of the following statements is CORRECT?

1) EVA gives us an idea about how much value a firm’s management has added over the firm’s life.

2) EVA stands for economic value added, and it is defined as follows:
EVA = NOPAT – (Investor-supplied oper. capital)(AT cost of capital %)

Note :

1) MVA stands for market value added, and it is defined as follows:
MVA = (Shares outstanding)(Stock price) - Book value of common equity.

2) The primary difference between EVA and accounting net income is that when net income is calculated, the deduction is not made to account for the cost of common equity, whereas EVA represents net income after deducting the cost of the equity capital the firm uses. i.e it considered the oppurtunity cost of equity

3) MVA gives us an idea about how much Market value of a firm’s management is higher than Book Value of Equity

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