Fundamentals of Financial Manageme...
Solutions
Fundamentals of Financial Manageme...
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?
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.
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,
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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