Question about difference in definitions: MVA vs. EVA

CFA Level II
#1

Hi everyone,

I found a relatively large difference in the definitions for market value added (MVA) in the CFAI curriculum.

In corporate finance, it defines MVA as the sum of present values of economic profit (NOPAT - WACC * Capital_0)

Then, under the Equity reading, it defines:

MVA = market value of company - accounting BV of total capital (or MV of long term debt and equity - BV capital at end of year in Schweser) and it defines economic value added as:

EVA = NOPAT - WACC * capital = economic profit A problem on one of the practice exams asked for a calculation of MVA, and the solution used the formula MV of long term debt and equity - BV capital at end of year, and using the definition from corporate finance gave the wrong answer.

Does anyone know the reason for this difference and what to do about it on the exam?

#2

The “sum of present values of economic profit” is not the same as economic profit. “Economic income” is also entirely different from economic profit AND MVA, so better to just brush up on that corp. fin reading again.