Which of the following statements is CORRECT?

Question

Quizplus · Accepted Answer

EVA (economic value added) is a measure of a company's true economic profit after deducting the cost of capital invested. One way to increase EVA is to generate the same level of operating income but with less investor-supplied capital, as this reduces the cost of capital and increases the economic profit. Choice A is incorrect because increasing the investor-supplied capital would only increase the cost of capital and reduce the EVA. Choice B is incorrect because net income and EVA are different measures and may not always move in the same direction. Choice C is incorrect because EVA does not assume that equity capital is free, but rather takes into account the cost of all capital invested. Choice E is incorrect because actions that increase reported net income may not necessarily increase net cash flow, as there could be non-cash items affecting net income such as depreciation.

Which of the Following Statements Is CORRECT