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 $41.00 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:

$21,000,000

Explanation:

Data provided in the question

Capital provided = $20,000,000

Now the updated value of the common stock is

= 1,000,000 shares × $41

= $41,000,000

So, the valued added to the stockholder wealth is

= Updated value - capital provided

= $41,000,000 - $20,000,000

= $21,000,000

The difference of the amount is considered to be the value added