Which of the Following Statements Is CORRECT

question 60

Multiple Choice

Which of the following statements is CORRECT?

• A) Actions that increase reported net income will always increase cash flow.
• B) One way to increase EVA is to generate the same level of operating income but with less investor-supplied capital.
• C) One drawback of EVA as a performance measure is that it mistakenly assumes that equity capital is free.
• D) One way to increase EVA is to achieve the same level of operating income but with more investor-supplied capital obtained at a higher cost of capital.
• E) If a firm reports positive net income, its EVA must also be positive.

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Definitions:

Net Income

The net financial gain or deficit for a company following the calculation of all income and outgoings.

Operating Expenses

Expenditures that a business incurs as a result of performing its normal business operations.

Rent Revenue

Income earned from leasing out properties or equipment.

Cost of Goods Available

The total inventory cost of goods that a company has available for sale at the beginning of an accounting period, including purchases made during the period.