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Fundamentals of Financial Manageme...

15th Edition
Eugene F. Brigham + 1 other
ISBN: 9781337395250

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BuyFindarrow_forward

Fundamentals of Financial Manageme...

15th Edition
Eugene F. Brigham + 1 other
ISBN: 9781337395250
Textbook Problem

MVA Over the years. Masterson Corporation’s stockholders have provided $34,000,000 of capital when they purchased now 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 outstanding, and the shares sell at a price of $28 per share. How much value has Masterson’s management added to stockholder wealth over the years, that is, what is Masterson’s MVA?

Summary Introduction

To compute: The market value added of Company M.

Introduction:

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

Explanation

Given,

Book value of common equity is $34,000,000.

Stock price is $28 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 $34,000,000 for common book value of equity, $28 for stock price and 2,000,000 for number of shares outstanding

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