Within the context of capital budgeting,a primary goal-congruency problem exists when DCF models are used for decision-making purposes but accrual-based earnings figures are used for subsequent performance evaluation purposes.Which of the following items is not likely useful for addressing this goal-congruency problem?

Question

Quizplus · Accepted Answer

Monte Carlo simulation is a tool used to incorporate uncertainty and risk in capital budgeting decision-making, but it is not directly relevant to addressing the goal-congruency problem of using DCF models for decision-making and accrual-based earnings for performance evaluation. Choices B, C, and D are all relevant to addressing this problem. EVAF (Economic Value Added-Financial) is a performance metric that explicitly considers the cost of capital in evaluating a company's performance, thus aligning with DCF models. Separating incentive compensation from budgeted performance can incentivize decision-makers to make capital investments that align with long-term value creation, rather than just short-term earnings targets. Conducting post-audits of capital investment decisions helps to assess the actual performance of investments made and whether the decision-making process was accurate.

Within the Context of Capital Budgeting,a Primary Goal-Congruency Problem Exists →\rarr→

Within the Context of Capital Budgeting,a Primary Goal-Congruency Problem Exists $\rarr$