Which of the following is a key difference between EVA and residual income?
A) The weighted average cost of capital is used to calculate EVA, but not necessarily for residual income.
B) Net profit is used to calculate residual income but is irrelevant for EVA.
C) EVA has a long term focus, but residual income has a short term focus.
D) There is no difference between EVA and residual income.

Question

Quizplus · Accepted Answer

The weighted average cost of capital (WACC) is a key component in the calculation of EVA, as it reflects the cost of capital for a company's investments. Residual income, on the other hand, does not necessarily require the use of WACC in its calculation. This is because residual income is calculated by subtracting a company's equity charge (based on its cost of equity) from its net income, meaning that it does not take into account the cost of debt or other forms of capital.

Which of the Following Is a Key Difference Between EVA