Question

Economic value added:a. is a dollar amount rather than a percentage.b. is both a dollar amount rather than a percentage and uses a firm's weighted-average cost of capital.c. uses total assets in its computation and ignores current liabilities.d. cannot be negative.e. uses a firm's weighted-average cost of capital.

Answer 1

Answer:

The correct answer is letter "B": is both a dollar amount rather than a percentage and uses a firm's weighted-average cost of capital.

Explanation:

The Economic Value Added metric helps the shareholders of a business to determine how their capital is performing against other potential investments using the weighted-average cost of capital for that purpose. It is also a useful calculation for companies to decide on the most economically valuable project to be pursued.

The economic value added is calculated by subtracting the opportunity cost of capital from the earnings of the company. The result is given in dollar amounts.