If ROC is less than a firm's cost of capital, which of the following must be true?
A)the firm's EVA is positive.
B)the firm's EVA is negative.
C)the firm's ROE is equal to zero.
D)the firm's ROE is negative.

Question

Quizplus · Accepted Answer

If ROC is less than a firm's cost of capital, it indicates that the return generated by the firm's operations is not sufficient to cover the cost of the invested capital. In this case, EVA (Economic Value Added) would be negative, as the firm is not creating value for its shareholders. Therefore, the correct choice is B. The other options cannot be inferred from the given information.

If ROC Is Less Than a Firm's Cost of Capital