If a Company's Expected Return on Invested Capital Is Less

question 14

True/False

If a company's expected return on invested capital is less than its cost of equity, then the company must also have a negative market value added (MVA).

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Definitions:

Tax Rates Change

Adjustments made by the government to the percentage at which income, corporate profits, or other bases are taxed, which may affect individuals, corporations, and valuation of investments.

GAAP

Generally Accepted Accounting Principles, which are a common set of accounting principles, standards, and procedures that companies must follow when they compile their financial statements.

Asset Approach

A valuation method that estimates a company's value based on the total value of its assets minus its liabilities.

Liability Approach

A method in accounting that emphasizes recording all financial liabilities at their current value to ensure accurate financial reporting.