Question

Over the years, Masterson Corporation’s stockholders have provided $34,000,000 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 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?

Answer 1

Answer: MVA  = $22,000,000

Explanation:

Given:

Initial capital = $34,000,000

No. of  shares of common stock = 2,000,000

Price of each share = $28

We can  compute the MVA using the following formula,

MVA = Current market value - Initial capital provided

where,

Current market value = No. of  shares of common stock × Price of each share

= 2,000,000 × $28

= $56,000,000

Therefore,

MVA = $56,000,000 - $34,000,000

MVA  = $22,000,000