Question

Drag each label to the correct location on the image. Andrew has bought some stocks in Xylet. He needs to know whether the given factors affect the value of financial assets of Xylet or not based on the EVA valuation method. Match the factors to their relevant boxes.
TILES
Xylet’s profits are forecasted to grow at 5% in the first year and 6% in the second year

Xylet’s employees join together for a company picnic once a month

Xylet’s cost of capital has increased from 4% to 5%

Xylet was voted “Best Place to Work”by the local newspaper

Xylet raises financing by issuing bonds, a form of debt

Xylet’s CEO was featured on a national television program

Categories

Affected

Not Affected

Answer 1

Answer:

Xylet’s profits are forecasted to grow at 5% in the first year and 6% in the second year

• Affected

Xylet’s employees join together for a company picnic once a month

• Not Affected

Xylet’s cost of capital has increased from 4% to 5%

• Affected

Xylet was voted “Best Place to Work” by the local newspaper

• Not Affected

Xylet raises financing by issuing bonds, a form of debt

• Affected

Xylet’s CEO was featured on a national television program

• Not Affected

Explanation:

The economic value added (EVA) measures how much more value, wealth or actual money is created by an investment.

In this case, the more profits grow, the more value is created by the company. If the cost of capital increases, it will be more expensive for the company to operate resulting in less value created. Bonds are part of the financial activities of a company and the money provided should help to increase value.