Over the years, O'Brien Corporation's stockholders have provided $20,000,000 of capital, when they purchased new allowed management to retain some of the firm's earnings. The firm now has 1,000,000 shares of common stock out a price of $38.50 per share. How much value has O'Brien's management added to stockholder wealth over the year O'Brien's MVA?

Question

Quizplus · Accepted Answer

The Market Value Added (MVA) is calculated as the difference between the market value of the firm's equity and the capital provided by shareholders. The market value of equity is 1,000,000 shares * $38.50 = $38,500,000. The capital provided by shareholders is $20,000,000. Therefore, MVA = $38,500,000 - $20,000,000 = $18,500,000.

Over the Years, O'Brien Corporation's Stockholders Have Provided $20,000,000 of Capital