The financial statements reflect historical data, but managers' performance must be evaluated on the basis of $$ values. To provide this information, financial analysts have developed two measures: Market Value Added $($MVA$)$ and Economic Value Added $($EVA$).$

Market Value Added represents the difference between the money stockholders have invested in the firm versus the cash they could receive if the firm were sold. The equation for MVA is:

MVA $=(Shares$ outstanding $$ Stock price$)-$ Total common equity

Shareholder wealth is maximized when this difference is $).$ The $$ a firm's MVA, the better the job management is doing for its shareholders.

Economlc Value Added is sometimes called $|",$ and it is closely related to MVA. The equation for IEVA is:

EVA $=$ EBIT $(1-T)-($Total invested capital $x$ After$-$tax percentage cost of capital$)$

Note that total invested capital is equal to the sum of notes payable, long$-$term debt, and total common equity. EVA differs from because EVA has a deduction for the cost of equity. Positive EVA on an annual basis helps ensure that MVA is also positive. $$ can be determined for divisions as well as for the firm as a whole, so it is useful for establishing reasonable compensation for divisional managers as well as top company officers.

Quantitative Problem: Rosnan Industries' $2019$ and $2018$ balance sheets and income statements are shown below.