Which of the Following Statements Is CORRECT

question 7

Multiple Choice

Which of the following statements is CORRECT?

• A) One way to increase EVA is to achieve the same level of operating income but with more investor-supplied capital.
• B) If a firm reports positive net income,its EVA must also be positive.
• 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 generate the same level of operating income but with less investor-supplied capital.
• E) Actions that increase reported net income will always increase net cash flow.

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Definitions:

Sales and Direct Cost

The total revenue generated from goods and services minus the direct costs associated with producing those goods and services.

Activity-Based Costing

A method of costing that identifies the relationship between costs, activities, and products, and through this relationship, assigns indirect costs to products less arbitrarily than traditional methods.

Processing Costs

The expenses involved in handling, treating, or converting raw materials into finished products.

Equipment Expense

The cost associated with purchasing or maintaining equipment necessary for the operation of a business.