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Fundamentals of Financial Manageme...

14th Edition
Eugene F. Brigham + 1 other
ISBN: 9781285867977

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BuyFindarrow_forward

Fundamentals of Financial Manageme...

14th Edition
Eugene F. Brigham + 1 other
ISBN: 9781285867977
Textbook Problem

MVA Over the years, McLaughlin Corporation's stockholders have provided $35,000,000 of capital, when they purchased new issues of stock and allowed management to retain some of the firm's earnings. The firm now has 2,000,000 shares of common stock out-standing, and the shares sell at a price of $30 per share. How much value has McLaughlin's management added to stockholder wealth over the years, i.e., what is McLaughlin's MVA?

Summary Introduction

To compute: The outstanding common share of Company M.

Market Value Added: The measure to evaluate management’s performance in a company’s operations and growth, market value added considers the market value of company’s outstanding shares. It reports the market value over and above the book value of those outstanding shares.

Explanation

Solution:

Given,

Book value of common equity is $35,000,000.

Stock price is $30 per share.

Number of shares outstanding are 2,000,000.

Formula to compute market value added,

Market Value Added=[(Number of Outstanding Shares×Stock Price)Book Value of Equity]

Substitute $35,000,000 for common book value of equity, $30 for stock price and 2,000,000 for number of shares outstanding

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