Which of the following statements is CORRECT?
A) Actions that increase reported net income will always increase cash flow.
B) One way to increase EVA is to generate the same level of operating income but with less total invested capital.
C) One drawback of EVA as a performance measure is that it mistakenly assumes that equity capital is free.
D) One way to increase EVA is to achieve the same level of operating income but with more total invested capital obtained at a higher cost of capital.
E) If a firm reports positive net income,its EVA must also be positive.

Question

Quizplus · Accepted Answer

Statement b is true,because the EVA equation: EVA = EBIT (1 - T)- (After-tax cost of capital %)(Total invested capital)implies that lowering the operating capital,other things held constant,lowers capital costs and thus increases EVA.

Which of the Following Statements Is CORRECT