Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Annie During the 1990s, the consulting firm Stern, Stewart & Company developed the concept of Economic Value Added, or EVA, to better assess management's performance

image text in transcribed

Annie During the 1990s, the consulting firm Stern, Stewart & Company developed the concept of Economic Value Added, or EVA, to better assess management's performance in maximizing their shareholders' wealth. Allied Biscuit's EVA equals the additional profit created in excess of the after-tax operating income necessary to finance its total after-tax cost of capital, which is expressed in annual dollars. It is computed by subtracting Allied Biscuit's from its In turn, Allied Biscuit's annual cost of capital is calculated by multiplying its total working capital, by the after-tax percentage cost of capital. OK, given that description, here's a question for you: Compared to the book value, what is the operating capital, which includes its net fixed assets and net operating advantage of using the EVA to evaluate the performance of Allied Biscuit's management? Tristan Give me a second to think. . . OK, it's better to evaluate the performance of Allied Biscuit's management by using the company's EVA rather than the book value of its shareholders' equity because the better the managerial decisions being made, the operating income earned, the the cost of capital needed to generate that income, and the economic profit, earned by the company the after-tax net the difference between this net operating income and the EVA, or true Annie Nicely done! Does this make your reading of Allied Biscuit's annual report easier

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

The Oxford Handbook Of Entrepreneurial Finance

Authors: Douglas Cumming

1st Edition

0195391241, 978-0195391244

More Books

Students also viewed these Finance questions

Question

=+ (b) Show that X ,, - p X if and only if d( X ,, X) ->0.

Answered: 1 week ago

Question

Connect with your audience

Answered: 1 week ago