Economic Value Added (EVA®)

question 144

Multiple Choice

Economic value added (EVA®) :

• A) Encourages divisional managers to accept only new capital projects (i.e., long-term investments) with a return on investment (ROI) that exceeds the current ROI.
• B) Of $50,000 indicates that the division earned $50,000 for the company.
• C) Of $10,000 indicates that the division's actual earnings (adjusted for bias effects of accounting conservatism) exceed the division's imputed capital charge by $10,000.
• D) Is considered appropriate for evaluating the financial performance of profit but not investment centers.
• E) Has the added benefit of being usable for income tax determination purposes.

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Definitions:

Minimum Gain

The least amount of profit or advantage that can be achieved in a given transaction or situation.

Maximum Gain

The highest possible profit or advantage that can be achieved in a particular situation.

Nash Equilibrium

A situation in strategic interactions where each participant's choice is optimal, considering the decisions of others.

Firm

An organization engaged in commercial, industrial, or professional activities, typically aimed at generating profits.