Which of the following statements is true concerning economic value added?
A) A growing number of firms tie managers' compensation to EVA.
B) A profitable firm will always have a positive EVA.
C) EVA recognizes that the cost of capital is not a real cost.
D) If a firm has positive present value of growth opportunities, it will have positive EVA.

Question

Quizplus · Accepted Answer

A growing number of firms tie managers' compensation to EVA, making it an important metric for evaluating managerial performance. Profitability alone does not guarantee positive EVA, as it also takes the cost of capital into account. Additionally, EVA does recognize that the cost of capital is a real cost and subtracts it from profits. However, the statement regarding positive present value of growth opportunities and EVA is not necessarily true as it depends on the magnitude of the growth opportunities and the cost of capital.

Which of the Following Statements Is True Concerning Economic Value