Which of the Following Statements Is Most Correct

question 27

Multiple Choice

Which of the following statements is most correct?

• A) Actions which increase net income will always increase net cash flow.
• B) One way to increase EVA is to maintain the same operating income with less capital.
• C) One drawback of EVA as a performance measure is that it mistakenly assumes that equity capital is free.
• D) Answers a and b are correct.
• E) Answers a and c are correct.

---

Definitions:

Regular IRR

The Internal Rate of Return (IRR) is a financial metric used to estimate the profitability of potential investments.

WACC

The Weighted Average Cost of Capital represents the average cost of a company's financing (debt and equity), where each form of capital is weighted according to its proportion in the overall financing mix.

NPV

Net Present Value; a method used in capital budgeting to assess the profitability of an investment or project, calculated by discounting future cash flows to their present value and subtracting the initial investment.

IRR

The Internal Rate of Return, a financial metric used to evaluate the profitability of potential investments, calculated as the discount rate that makes the net present value of all cash flows equal to zero.