Compute the mva

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Reference no: EM131007657

(Refer to the INSIGHTS box on pages 94-95 before attempting this problem. Notice that the calculations called for here do not involve cost of capital.) William Edwards, Inc. (WEI) had one million shares of common stock outstand- ing on 12/31/20X0. The stock had been sold for an average of $8.00 per share and had a market price of $13.25 per share on that date. WEI also had a balance of $5.0 million in its retained earnings account on that date. The following projection has been made for WEI's next five years of operations:

Year

Net Income

Dividends/Share

Shares Issued

Average Issue Price

Stock Price 12/31

20X1

$700,000

$.20

None

NA

$13.75

20X2

840,000

.22

50,000

$14.00

14.25

20X3

750,000

.24

100,000

13.50

13.80

20X4

900,000

.26

50,000

14.50

15.00

20X5

860,000

.28

None

NA

15.40

Compute the MVA as of 12/31/X0, and compute EVA®, the change in MVA, as a result of each subsequent year's activity. (Assume that all shares issued during any given year received the dividends declared that year.) Comment on management's projected performance over the five-year period. What would you do if you repre- sented a majority of the stockholders? Would the result have been different before MVA/EVA analysis?

Reference no: EM131007657

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