Economic value added:
A)encourages segment managers to accept only new capital projects with a return on investment (ROI)that exceed the current ROI.
B)of $100,000 indicates the segment earned $100,000 for the company.
C)of $20,000 indicates the segment's actual earnings (adjusted for biasing effects of accounting conservatism)exceeded the company's cost of capital by $20,000.
D)is considered an inferior method of evaluating investment center performance.

Question

Quizplus · Accepted Answer

Economic value added (EVA) is a financial performance metric that calculates the difference between the actual earnings of a company or segment and its cost of capital. A positive EVA indicates that the company or segment has generated value above its required return, while a negative EVA indicates that it has not. EVA is a useful tool for evaluating the effectiveness of investment decisions, as it encourages managers to prioritize projects that generate a return above the cost of capital. Therefore, choice C is the most accurate description of EVA.

Economic Value Added