Using the EVA,one should invest only if the increase in earnings is sufficient to cover the:
A)net cash flow.
B)value of the investment in year t.
C)required rate of return.
D)value of the investment in year t + 1.

Question

Quizplus · Accepted Answer

The EVA (Economic Value Added) approach measures the profitability of an investment by taking into account the cost of capital. Therefore, one should only invest if the increase in earnings is sufficient to cover the required rate of return. Options A and D are not relevant to the calculation of EVA, and option B is only one element of the investment cost, which also includes other costs such as maintenance and operating expenses.

Using the EVA,one Should Invest Only If the Increase in Earnings