Which of the following financial approaches uses recent developments in corporate finance, especially the capital asset pricing model, to identify the cost of capital for a specific division or business unit, while attempting to remove distortions created by the GAAP?
A) Modified NPV
B) Residual income
C) EVA
D) Real options

Question

Quizplus · Accepted Answer

EVA (Economic Value Added) uses the capital asset pricing model to determine a company's cost of capital and compares it to the company's return on investment. It also attempts to remove GAAP distortions to give a more accurate picture of a company's financial performance. Modified NPV, residual income, and real options do not necessarily incorporate the capital asset pricing model or address GAAP distortions in the same way as EVA.

Which of the Following Financial Approaches Uses Recent Developments in Corporate