Which of the Following Statements Is CORRECT

question 69

Multiple Choice

Which of the following statements is CORRECT?

• A) The primary difference between EVA and accounting net income is that when net income is calculated, a deduction is made to account for the cost of common equity, whereas EVA represents net income before deducting the cost of the equity capital the firm uses.
• B) MVA gives us an idea about how much value a firm's management has added during the last year.
• C) MVA stands for market value added, and it is defined as follows:
• MVA = (Shares outstanding)(Stock price) + Book value of common equity.
• D) EVA stands for economic value added, and it is defined as follows:
• EVA = EBIT(1 − T) − (Investor-supplied op.capital) × (A − T cost of capital).
• E) EVA gives us an idea about how much value a firm's management has added over the firm's life.

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Definitions:

Corrective Tax

A tax designed to encourage or discourage certain behaviors by effectively increasing the costs associated with these behaviors, often used for environmental or public health reasons.

Market Demand Curve

A graphical representation showing the quantity of a good consumers are willing and able to buy at different price levels.

Social Optimum

The ideal level of allocation of resources that results in the highest possible economic welfare for society.

Corrective Tax

A tax designed to encourage or discourage certain behaviors by including the cost of externalities, thereby correcting an inefficient market outcome.