Which of the Following Statements Is CORRECT

question 19

Multiple Choice

Which of the following statements is CORRECT?

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

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Definitions:

Expected Value

A calculated average of all possible values of a random variable, weighted by their probabilities of occurrence.

Payoffs

The returns or benefits received as a result of an action or investment.

Expected Value

The anticipated value or average outcome of a random variable, taking into account all possible outcomes weighted by their probabilities.

Probabilities

A measure expressing the likelihood of occurrence of a given event, typically defined on a scale from 0 to 1, where 0 means the event cannot occur and 1 indicates certainty.