Question

Over the years, O'Brien Corporation's stockholders have provided $20,000,000 of capital, when they purchased new issues of stock and allowed management to retain some of the firm's earnings. The firm now has 1,000,000 shares of common stock outstanding, and it sells at a price of $33.00 per share. How much value has O'Brien's management added to stockholder wealth over the years, i.e., what is O'Brien's MVA?

Answer 1

Answer:

$13,000,000

Explanation:

Given that,

Total Book Value of Equity = $20,000,000

Common stock outstanding = 1,000,000 shares

Selling price per share = $33.00

Market value of equity:

= Selling price per share × Shares outstanding

= $33.00 × 1,000,000

= $33,000,000

O'Brien's MVA:

= Market value of equity - Total Book Value of Equity

= $33,000,000 - $20,000,000

= $13,000,000