Question
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
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. |
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