EVA encourages the right kind of behavior from divisions because of its emphasis on
A)after-tax net income.
B)total capital employed.
C)true cost of capital.
D)before-tax operating income.

Question

Quizplus · Accepted Answer

EVA emphasizes the true cost of capital, which means that divisions are incentivized to use capital efficiently and only pursue projects that generate a return greater than their cost of capital. This encourages the right kind of behavior, as it ensures that capital is being used in the most effective way possible.

EVA Encourages the Right Kind of Behavior from Divisions Because