Which of the following is the required rate of return used in the economic value added (EVA) calculation?
A) The ROI of the division or company being evaluated
B) After-tax weighted-average cost of capital
C) The residual income/total assets
D) The after-tax operating income/(Total assets - current liabilities)

Question

Quizplus · Accepted Answer

The economic value added (EVA) calculation utilizes the after-tax weighted-average cost of capital as the required rate of return. This is because EVA measures a company's economic profit above and beyond the cost of financing its operations. The use of after-tax weighted-average cost of capital ensures that the cost of debt and equity financing is taken into account in determining a company's economic value added.

Which of the Following Is the Required Rate of Return