Within the context of capital budgeting, a primary goal-congruency problem exists when discounted cash flow (DCF) models are used for decision-making purposes, but accrual-based earnings figures are used for subsequent performance-evaluation purposes. Which of the following items is not likely to be useful for addressing this goal-congruency problem?
A) Monte Carlo simulation.
B) Use of EVA® as the financial-performance metric.
C) Separating incentive compensation (i.e., "reward") from budgeted performance.
D) Conducting post-audits of capital investment decisions.

Question

Within the context of capital budgeting, a primary goal-congruency problem exists when discounted cash flow (DCF) models are used for decision-making purposes, but accrual-based earnings figures are used for subsequent performance-evaluation purposes. Which of the following items is not likely to be useful for addressing this goal-congruency problem? 
A) Monte Carlo simulation.
B) Use of EVA® as the financial-performance metric.
C) Separating incentive compensation (i.e., "reward") from budgeted performance.
D) Conducting post-audits of capital investment decisions.

Quizplus · Accepted Answer

Separating incentive compensation from budgeted performance does not directly address the goal-congruency problem related to using different metrics (DCF for decision-making and accrual-based earnings for performance evaluation). Monte Carlo simulation, EVA® as a performance metric, and post-audits all help align or evaluate decisions and performance more consistently.

Within the Context of Capital Budgeting, a Primary Goal-Congruency Problem