If the purpose of an entity is to maximise the wealth of its owners,the most complete measure of economic profit is considered to be:
A)residual income.
B)economic value added.
C)return on investment.
D)return on sales.

Question

Quizplus · Accepted Answer

Economic value added (EVA) is the most complete measure of economic profit as it takes into account not only the accounting profit, but also the cost of capital. It subtracts the cost of capital from the operating profit to arrive at the net economic profit, which is the amount of wealth created for the owners. Residual income is also a measure of economic profit, but it only considers the accounting profit after deducting the minimum required return on investment. Return on investment (ROI) and return on sales (ROS) are profitability ratios, which do not take into account the cost of capital.  So, option B is the correct answer.

If the Purpose of an Entity Is to Maximise the Wealth