APPENDIX C
Economic Value Added Model Development
In chapter 4, we defined current market value (MV0) as beginning capital plus the present value of future EVAs. Many will recognize this as consistent with the popular MVA (market value added) concept where the MVA of a firm is its market value less invested capital. We have:
MV0 = Invested Capital + Present Value of Future EVAs
We broke future EVAs into two parts: maintaining current EVA and achieving EVA improvements (ΔEVAs). We employed the following expression for current total market value based on beginning invested capital, capitalized current EVA, and the capitalized present value of expected EVA improvements:
We referred to the sum of the first two terms as “current operations value” ...
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