Which of the Following Is a Key Difference Between EVA

question 7

Multiple Choice

Which of the following is a key difference between EVA and residual income?

• A) The weighted average cost of capital is used to calculate EVA, but not necessarily for residual income.
• B) Net profit is used to calculate residual income but is irrelevant for EVA.
• C) EVA has a long term focus, but residual income has a short term focus.
• D) There is no difference between EVA and residual income.

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Definitions:

Common Fixed Costs

Costs that do not vary with the level of output or sales, shared among products or departments.

Investment Evaluation

The process of determining the potential returns of an investment opportunity, considering risks, costs, and benefits to make informed financial decisions.

Responsibility Centres

Divisions or departments within an organization, each managed by a supervisor who is responsible for its performance and costs.

Profit and Loss Statements

Financial documents that summarize revenues, costs, and expenses incurred during a specific period to show a company's net income or loss.