MVA & EVA

MARKET VALUE ADDED (MVA)

- The excess of market value of equity over its
book value or carrying amount.

MVA= STOCKS FAIR VALUE – BOOK

VALUE
Over the years, O'Brien Corporation's stockholders have
provided P20,000,000 of capital, when they purchased new
issues of stock and allowed management to retain some of
the firm's earnings. The firm now has 1,000,000 shares of
common stock outstanding, and it sells at a price of P38.50
per share. How much value has O'Brien's management
added to stockholder wealth over the years, i.e., what is
O'Brien's MVA?
Byrd Lumber has 2 million shares of common stock
outstanding that sell for P17 a share. If the company has
P40 million of common equity on its balance sheet, what is
the company's Market Value Added (MVA)?
Hayes Corporation has P300 million of common equity,
with 6 million shares of common stock outstanding. If
Hayes' Market Value Added (MVA) is P162 million, what is
the company's stock price?
ECONOMIC VALUE ADDED (EVA)
- Is a measure of a company’s financial performance based
on the residual wealth from its operating profit.
- Incremental difference in the rate of return over a
company’s cost of capital.

EVA=
NOPAT – [(Total asset-Current liabilities)*WACC]
The following year-end data pertain to GISAPOT KO Inc.:

EBIT P800,000
CURRENT ASSET 800,000
NONCURRENT ASSET 3,200,000
CURRENT LIABILITIES 400,000
NONCURRENT LIAB 1,000,000

GISAPOT KO pays an income tax rate of 30%. Its WACC is

10%. What is the EVA?
Scranton Shipyards has P20 million in total invested
operating capital, and its WACC is 10%. Scranton has the
following income statement:

Sales P10.0 million

Operating costs 6.0 million
Operating income (EBIT) P 4.0 million
Interest expense 2.0 million
Earnings before taxes (EBT) P 2.0 million
Taxes (40%) 0.8 million
Net income P 1.2 million
What is Scranton's EVA?
For 2014, Bargain Basement Stores reported P11,500 of sales
and P5,000 of operating costs (including depreciation of P500).
The company has P20,500 of total invested capital, the
weighted average cost of that capital (the WACC) was 10%,
and the federal-plus-state income tax rate was 40%. What was
the firm's Economic Value Added (EVA), i.e., how much value
did management add to stockholders' wealth during 2014?
The following data are available for SIR GWAPO Inc.:
Book value Fair value
Current asset P800,000
Noncurrent asset 3,200,000
Current liabilities 400,000
Noncurrent liabilities (8%) 1,000,000 P1,000,000
Stockholders’ equity 2,600,000 3,000,000

During the year, the company earned income before interest and
tax of P800,000. the tax rate is 25%. The cost of capital is 12%.
Compute the EVA.
Casey Motors recently reported the following information:

Net income = P600,000.

Tax rate = 40%.
Interest expense = P200,000.
Total invested operating capital employed = P9 million.
After-tax cost of capital = 10%.

What is the company's EVA?