Which of the following statements is CORRECT?

Question

Quizplus · Accepted Answer

EVA is calculated by subtracting the cost of capital from operating profit after tax. Thus, to increase EVA, a company would need to generate the same level of operating income with less investor-supplied capital. Option A is incorrect because increasing investor-supplied capital would decrease EVA because the cost of capital would also rise. Option B is incorrect because positive net income does not necessarily mean positive EVA as the cost of capital needs to be considered. Option C is incorrect because EVA takes into account the cost of equity capital, so the assumption that it is free is not made. Option E is incorrect because actions that increase reported net income do not necessarily increase net cash flow.

Which of the Following Statements Is CORRECT