Which of the following statements is true concerning Economic Value Added?
A)A growing number of firms tie managers' compensation to EVA.
B)A profitable firm will always have a positive EVA.
C)EVA recognises that the cost of capital is not a real cost.
D)If a firm has positive present value of growth opportunities it will have positive EVA.

Question

Quizplus · Accepted Answer

Many firms tie managers' compensation to EVA, making it an important metric for measuring financial performance and incentivizing managers to improve shareholder value.

Answer: B
 A profitable firm may not necessarily have a positive EVA, as EVA takes into account the cost of capital and whether the return on investment is sufficient to cover that cost.

Answer: C
 EVA recognizes that the cost of capital is a real cost because it considers the opportunity cost of investing in a project or asset as opposed to alternative investments that would provide a similar return.

Answer: D
 If a firm has positive present value of growth opportunities, it may still have negative EVA because the cost of capital may be higher than the return on investment in growth opportunities.

Which of the Following Statements Is True Concerning Economic Value