Economic Value Added (EVA) and Market Value Added (MVA)

Balance Sheet (12/31/2008)

Assets			Liabilities
Cash	125,000		Accounts payable	426,000
Accounts payable	975,000		Accrued liabilities	774,000
Inventory	1,215,000		Long-term debt	6,211,000
Fixed assets (net)	9,227,000
			Equity
			Common shares	2,100,000
			Retained earnings	2,081,000
Total assets	11,592,000		Total liabilities and equity	11,592,000

Income Statement (12/31/2008)

Sales				9,423,000
Cost of sales				4,580,000
SG&A				1,230,000
Depreciation				1,745,000
Interest Expense				522,000
Income tax expense				403,800
Net income				942,200

• Tax rate = 30%
• WACC = 11.9%
• Current stock price = $35
• Shares outstanding = 130,000
• Current long-term debt value = 95% of its book value

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Economic Value Added (EVA)
= NOPAT - $WACC
= EBIT*(1-t) - $WACC

EBIT
= Sales - Cost of sales - SG&A - Depreciation
= 9,423,000 - 4,580,000 - 1,230,000 - 1,745,000
= 1,868,000

Total capital
= Long-term debt + Common shares + Retained earnings
= 6,211,000 + 2,100,000 + 2,081,000
= 10,392,000

Economic Value Added (EVA)

= 1,868,000*(1-30%) - 11.9% * 10,392,000

= 1,307,600 - 1,236,648

= 70,952

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Market Value Added (MVA)
= Market value (Equity) + Market value (Long-term debt) - Book value (Equity) - Book value (Long-term debt)

Market value (equity) = $35 * 130,000 = $4,550,000
Market value (long-term debt) = 95% * 6,211,000 = $5,900,450

Market Value Added (MVA)
= 4,550,000 + 5,900,450 - (2,100,000 + 2,081,000) - 6,211,000
= 58,450