One calculates economic value added (EVA)as follows:
A)EVA = income earned − (cost of debt)× (investment).
B)EVA = income earned − (cost of equity)× (investment).
C)EVA = income earned − (cost of capital)× (investment).
D)EVA = income earned − (investment)× (cost of capital).

Question

Quizplus · Accepted Answer

Economic value added (EVA) is calculated as the difference between the company's net operating profit after tax (NOPAT) and the cost of capital. The cost of capital includes both the cost of debt and the cost of equity, weighted according to their share in the company's capital structure. Therefore, option C, which calculates EVA as income earned minus (cost of capital) × (investment), is the best choice.

One Calculates Economic Value Added (EVA)as Follows