If a Company's Expected Return on Invested Capital Is Less

question 14

True/False

If a company's expected return on invested capital is less than its cost of equity, then the company must also have a negative market value added (MVA).

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Definitions:

Annual Fixed Costs

Expenses that do not change over a year regardless of the level of production or sales.

Variable Costs

Costs that vary directly with the level of production or sales, such as materials and labor.

Fixed Costs

Costs that do not vary with the level of output or production, such as rent, salaries, and equipment costs.

Total Cost

The sum of all costs incurred in the production of goods or services, including fixed and variable costs.