Economic value added uses "adjusted after-tax operating income" as one of its inputs. One purpose of using after-tax income, rather than operating income, is to:
A)Encourage managers to file tax reports
B)Encourage managers to minimize taxes
C)Improve information reported to the SEC
D)Remove bias from the EVA calculation

Question

Quizplus · Accepted Answer

Using after-tax income instead of operating income encourages managers to minimize taxes, as a lower tax burden would result in higher after-tax income, and subsequently a higher EVA. This incentivizes managers to make decisions that not only improve operating income, but also reduce the tax burden on the company.

Economic Value Added Uses "Adjusted After-Tax Operating Income" as One