TESSA: That makes sense. So, what makes this value important to investors is that it is â—» value that can change-but only due to a couple of events, including the â—» of Treasury stock, the sale of new common or preferred shares, and the payment of â—» _. Equally important, it change in response to changes in the market prices of the firm's shares.
ASHER: Right! So, how useful would a firm's book value be for assessing the performance of Water & Power's management?
TESSA: Well, because Water & Power's book value â—» - with changes in the market price of the firm's shares, the firm's book value â—» reflect management's efforts to maximize the shareholder wealth and therefore â—» be used to evaluate management's performance.
Now, what about "Market Value Added"?
ASHER: During the 1990 s, the consulting firm Stern, Stewart & Company developed the concept of Market Value Added, or MVA, to better assess management's performance in maximizing their shareholders' wealth. To achieve this, a firm's MVA is computed as the between (of) the â—» value and the â—» value of Water & Power's shareholders' equity.
OK, now here's a question for you: Compared to the book value, what is the advantage of the MVA as a means of evaluating management's performance?
TESSA: Well, I would say that because the market value of Water & Power's shareholders' equity is calculated by multiplying the shares'
â—» by the number of shares â—» . , then it will fluctuate depending on how the market perceives