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

Question

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? O Economic value added Market value added Consider the following case: Last year, Jackson Tires reported net sales of $80 million and total operating costs (including depreciation) of $52 million. It had $115 million of investor-supplied capital, with an after-tax cost of 10%. If the company's tax rate is 40%, how much value did its management create or lose for Jackson Tire during the year? O $1.590 million O $5.300 million $36.500 million $57.500 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.) L

Explanation / Answer

Blanks:
Increased
Positive

EVA = Net Operating Profit After Taxes (NOPAT) - Invested Capital * Weighted Average Cost of Capital (WACC)

=(80-52)*(1-0.4)-(115*0.1)=5.3000
Hence second option is correct

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