A manager can improve EVA by
A)decreasing assets.
B)increasing tax expense.
C)increasing cost of capital.
D)decreasing current liabilities.

Question

Quizplus · Accepted Answer

EVA is calculated as Net Operating Profit After Tax (NOPAT) minus the Total Cost of Capital (TCC), where TCC includes both the cost of debt and the cost of equity. Therefore, by decreasing assets, the NOPAT will increase, which will lead to an increase in EVA. Increasing tax expense will lead to a decrease in NOPAT and a decrease in EVA. Increasing cost of capital will decrease the difference between NOPAT and TCC, leading to a decrease in EVA. Decreasing current liabilities will have no direct impact on EVA.

A Manager Can Improve EVA by