1. Market Value Added. Here is a simplified balance sheet for Caterpillar Tracto
ID: 2383382 • Letter: 1
Question
1. Market Value Added. Here is a simplified balance sheet for Caterpillar Tractor Current assets $42 524 Current liabilities $29,755 Long-term assets46,832Long-term debt 27,752 46.832Long-term debt 27,752 Other liabilities Equity Total 14.317 17,532 $89.356 Total $89,356 Caterpillar has 657 million shares outstanding with a market price of $83 a share. (LO4-1) a. Calculate the company's market value added b. Calculate the market-to-book ratio. c. Has the company created value for shareholders? Market Value Added. Suppose the broad stock market falls 20% in a year and Home Depot's stock price falls by 10%. (104.1) a. Will the company's market value added rise or fall? b. Should this change affect our assessment of the performance of Home Depot's managers? c. Would you feel differently about Home Depot's managers if the stock market were 2. unchanged and Home Depot's stock fell by 10%?Explanation / Answer
a
Market Value Added (MVA)
= Market Capitalization Total Common Shareholders' Equity
hence fall in market price will result in fall in MVA
b Since the main goal of a for-profit organization is to maximize shareholders' wealth, market value added is an important measure to analyze how much value a company has added to the wealth of its shareholders. Higher market value added is better.
hence change in MVA affect our assessment of the perfomance of home depot manager
c No,A negative MVA means that the value of management's actions and investments are less than the value of the capital contributed to the company by the capital market .
hence fall in stock price have impact on MVA
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