Economic value added (EVA):
A)uses the same basic formula as return on investment (ROI)
B)ignores R&D spending
C)decreases a manager's incentive to maximize firm value
D)is easy to administer
E)measures the total return after deducting the cost of all capital employed by the firm

Question

Quizplus · Accepted Answer

Economic value added (EVA) measures the total return after deducting the cost of all capital employed by the firm, which distinguishes it from return on investment (ROI) that ignores the cost of capital. It is more comprehensive than ROI and considers both the operating performance of the firm and the cost of capital. It does not ignore R&D spending and can decrease a manager's incentive to maximize firm value as it focuses on creating value for shareholders rather than just increasing profits. However, EVA is not easy to administer and requires detailed financial information.

Economic Value Added (EVA)