A firm has the following balance sheet Current Assets 500 Cu

A firm has the following balance sheet: Current Assets $500 Current Liabilities $800 Long-term Assets $1,500 Long-term Liabilities $200 Common Equity $1,000 Total Assets $2,000 Total Liabilities and Equity=$2,000 The firm\'s stock price is $33 per share, and the firm has 90 shares of stock outstanding. Compute the market value added or MVA to the nearest dollar.

Solution

Total Shares Outstanding = 90 and Current Stock Price = $ 33

Market Capitalization = 33 x 90 = $ 2970

Book Value of Debt = Long-Term Liabilities + Current Liabilities = 200 + 800 = $ 1000

Book Value of Common Equity = $ 1000

Market Value Added (MVA) = (Market Capitalization + Market Value of Debt)- (Book Value of Equity + Book Value of Debt) = (2970 + 1000) - (1000 + 1000) = $ 1970