Economic value added is residual income with the cost of capital equal to which of the following?
A) the firm's actual cost of capital
B) the firm's average cost of capital
C) the firm's standard cost of capital
D) the firm's budgeted cost of capital

Question

Quizplus · Accepted Answer

Economic value added (EVA) is calculated as net operating profit after taxes (NOPAT) minus the cost of capital. The cost of capital used in EVA calculation should reflect the actual cost of funds employed in the business, which is typically the firm's actual cost of capital. Therefore, option A is the best choice. Option B, C, and D are not appropriate because they are not reflective of the actual cost of capital.

Economic Value Added Is Residual Income with the Cost of Capital