The following are advantages of using EVA as a performance measure EXCEPT:
A)EVA can substitute for explicit monitoring by top management.
B)EVA makes the cost of capital visible to operating management,thereby reducing capital employed.
C)EVA does not measure present values.
D)EVA highlights business units that are underperforming their peers.

Question

Quizplus · Accepted Answer

The other three choices are valid advantages of using EVA, but option C is incorrect because EVA does measure present values. EVA (Economic Value Added) is a financial performance metric that calculates the residual income generated by a company after deducting its cost of capital from its operating profit. Present values are taken into account when calculating the cost of capital that is subtracted from operating profit to get EVA.

The Following Are Advantages of Using EVA as a Performance