Which of the following statements is CORRECT?
A) MVA stands for market value added, and it is defined as follows: MVA = (Shares outstanding)(Stock price) + Book value of common equity.
B) The primary difference between EVA and accounting net income is that when net income is calculated, a deduction is made to account for the cost of common equity, whereas EVA represents net income before deducting the cost of the equity capital the firm uses.
C) MVA gives us an idea about how much value a firm's management has added during the last year.
D) EVA gives us an idea about how much value a firm's management has added over the firm's life.
E) EVA stands for economic value added, and it is defined as follows: EVA = NOPAT - (Investor-supplied oper. capital)(AT cost of capital %)

Question

Quizplus · Accepted Answer

Option E is correct as it defines EVA (economic value added) correctly as NOPAT minus the cost of capital. Option A is incorrect as it defines MVA (market value added) incorrectly by adding the stock price and book value of common equity. Option B is incorrect as it incorrectly states that net income already deducts the cost of common equity, whereas EVA does deduct it. Option C is incorrect as MVA reflects the accumulated value added by a firm's management over its entire life, not just the last year. Option D is incorrect as it describes MVA, not EVA.

Which of the Following Statements Is CORRECT