Assuming a constant target rate of return and weighted average cost of capital, which of the following
Transactions will result in an increase in both residual income and economic value added?
A) Issuing bonds in exchange for cash
B) Issuing stock in exchange for a patent
C) Using cash to pay off a long term liability
D) Using cash to acquire new equipment

Question

Quizplus · Accepted Answer

Paying off a long-term liability reduces the capital charge, increasing both residual income and economic value added.

Assuming a Constant Target Rate of Return and Weighted Average