Financial statements reflect only book values of the data that analysts use to e

Question

Financial statements reflect only 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). 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 this case: Last year, Jackson Tires reported net sales of $80 million and total operating costs (including depreciation) of $52 million. Jackson Tires has $115 million of investor-supplied capital, which has an after-tax cost of 10%. If Jackson Tires's tax rate is 40%, how much value did its management create or lose for the firm during the year? $5.30 million $1.59 million $36.50 million $57.50 million According to Jackson Tires's balance sheet, the firm has $105 million of total common equity (common stock plus retained earnings). The firm has 10 million shares of common stock outstanding, and the current stock price is $30.00. What is Jackson Tires's current MVA? $166 million $234 million $295 million $195 million

Explanation / Answer

Ans 1 Details Amount Net Sales                80.00 Operating Cost                52.00 Operating Profit                28.00 Less Tax                11.20 NOPAT                16.80 Less Cost of Capital                11.50 EVA                  5.30 Ans 2 Market Value of shares              300.00 Book value of shares              105.00 MVA              195.00

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