An advantage of using economic value added as a performance indicator is:
A)Minimisation of suboptimal decision-making
B)The charge for capital can be varied to take into account various levels of risk
C)Adjustments can be made to the components within the equation to suit the specific circumstances of each division
D)all of the above

Question

Quizplus · Accepted Answer

All of the given options are advantages of using economic value added as a performance indicator. It helps in minimizing suboptimal decision-making, as it provides a clearer picture of the profitability of a division or a business unit by taking into account the cost of capital. The charge for capital can be varied to take into account various levels of risk, which can help in motivating managers to take more risk or to avoid risky investments. Adjustments can be made to the components within the equation to suit the specific circumstances of each division, which makes this performance indicator more flexible and customizable.

An Advantage of Using Economic Value Added as a Performance