William Edwards, Inc. (WEI) had one million shares of common stock outstanding 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:

Compute the MVA as of 12/31/X0, and compute EVAR, 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 represented a majority of the stockholders? Would the result have been different before MVA/EVAanalysis?

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Shares Average Stock Price Year Net Income Dividends/Share Issued ssue Price 12/31 20X1 $700,000 20X2 840,000 20X3 750,000 20X4 900,000 20X5 860,000 $.20 None 50,000 $14.00 100,000 13.5 50,000 14.50 None NA 24 .26 .28 $13.75 14.25 13.80 15.00 15.40 NA