Using Economic Value Added (EVA) to Calculate Residual Income, the Cost

question 16

Multiple Choice

Using Economic Value Added (EVA) to calculate residual income, the cost of capital employed is

• A) the standard percentage cost of capital multiplied by the average capital employed.
• B) the actual percentage cost of capital multiplied by the average capital employed.
• C) the standard percentage cost of capital multiplied by the total capital employed.
• D) the actual percentage cost of capital multiplied by the total capital employed.

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Definitions:

Inventories

are stocks of goods and materials held by a business in anticipation of future sales or production needs.

Sales Revenue

The total amount of money generated by the sale of goods or services before any costs or expenses are deducted.

Direct Method

An approach to preparing the cash flow statement where actual cash flow information from operating activities is used.

Accounts Receivable

Receivables from customers for goods or services that have been furnished but remain unpaid.