It Is Recommended That Investors Interested in the EVA Approach

question 59

Multiple Choice

It is recommended that investors interested in the EVA approach should seek companies that have a return of capital in excess of ------- because this will likely exceed the cost of capital and the company is,therefore,adding value.

• A)10
• B)20
• C)30
• D)40

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Definitions:

Fixed Cost

Costs that do not change with the level of production or sales, such as rent, salaries, and loan repayments.

Economies of Scale

The cost advantages that a business can exploit by expanding their scale of production, leading to a lower cost per unit.

Diseconomies of Scale

Increased costs per unit that occur when a company grows too large, leading to inefficiencies.

Long-Run Average Cost Curve

A graphical representation showing the minimum cost per unit at which a firm can produce any given level of output in the long run when all inputs are variable.