Notice that the calculations called for here do not involve cost of capital. 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 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 represented a majority of the stockholders. Would the result have been different before MVA/EVA analysis?

Year Net Income Dividends/Share Shares Average Issue Price NA $14.00 S13.50 $14.50 NA Stock Price 12/31 $13.75 $14.25 $13.80 $15.00 $15.40 Issued 20x1 $700,000 20x2 $840,000 20x3 $750,000 20x4 $900,000 20x5 $860,000 S.20 $.22 $.24 S.26 $.28 None 50,000 100,000 50.000 None