Question

Over the years, Masterson Corp's stockholders have provided $34,000,000 of capital when they purchased new issues of stock and allowed management to retain some of the firm's earnings. The firm now has 2,000,000 shares of common stock outstanding, and the shares sell at a price of $28 per share. How much value has Masterson's management added to stockholder wealth over the years, that is, what is Masterson's MVA?

Answer 1

Answer: $22,000,000

Step-by-step explanation:

Initial capital provided by stockholders = $34,000,000

common stock outstanding = 2,000,000 shares

Selling price of each share = $28

MVA = Current market value - Initial capital provided by stockholders

= (2,000,000 x $28) - $34,000,000

= $(56,000,000 - 34,000,000)

= $22,000,000