JOSH: Yes, I do$.$ Let's see if we can make these terms make sense by talking through their meaning and their significance to investors.

The term book value has several uses. It can refer to a single asset or the company as a whole. When referring to an individual asset, such as

a piece of equipment, book value refers to the asset's

$\_,$ adjusted for any accumulated

depreciation or amortization expense. The $.$ value, or difference between these two values, is called the asset's book value.

In contrast, when the term refers to the entire company, it means the total value of the company's

as reported in

the firm's

MIA: That makes sense. So$,$ what makes this value important to investors is that it is

value that can change$-$but only

due to a couple of events, including the

of

$.$ Equally important, it

of Treasury stock, the sale of new common or preferred shares, and the payment

change in response to changes in

Activity Frame

JOSH: Right! So$,$ how useful would a firm's book value be for assessing the performance of Extensive's management?

MIA: Well, because Extensive's book value

I with changes in the market price of the firm's shares, the firm's book

value

reflect management's efforts to maximize the shareholder wealth and therefore

be used to evaluate

management's performance.

Now, what about "Market Value Added"?

JOSH: 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

$.$ value and the

value of Extensive'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?

MIA: Well, I would say that because the market value of Extensive's shareholders' equity is calculated by multiplying the

shares'

by the number of shares

$,$ then it will fluctuate depending on how the market perceives

management's performance. A negative assessment will result in

market price and MVA.

JOSH: Nicely done! Does this make your reading of Extensive's annual report easier?