Which of the following statements is CORRECT?

Answer

The primary difference between EVA and accounting net income is that when net income is calculated, a deduction is made to account for the cost of common equity, whereas EVA represents net income before deducting the cost of the equity capital the firm uses.

MVA gives us an idea about how much value a firm's management has added during the last year.

MVA stands for market value added, and it is defined as follows: MVA = (Shares outstanding)(Stock price) + Book value of common equity.

EVA stands for economic value added, and it is defined as follows: EVA = EBIT(1 - T) - (Investor-supplied op. capital) x (A - T cost of capital).

EVA gives us an idea about how much value a firm's management has added over the firm's life.