Deduction is made to account for cost of common equity

Assignment Help Financial Management
Reference no: EM13846787

Which of the following statements is CORRECT?

MVA stands for market value added, and it is defined as follows:

MVA = (Shares outstanding)(Stock price) + Book value of common equity.

The primary difference between EVA and accounting net income is that when net income is calculated, a deduction is made to account for the cost of common equity, whereas EVA represents net income before deducting the cost of the equity capital the firm uses.

MVA gives us an idea about how much value a firm’s management has added during the last year.

EVA gives us an idea about how much value a firm’s management has added over the firm’s life.

EVA stands for economic value added, and it is defined as follows:

EVA = NOPAT – (Investor-supplied oper. capital)(AT cost of capital %)

Reference no: EM13846787

Questions Cloud

We begin our course study, we learn from gray : As we begin our course study, we learn from Gray and Larson (2014) that project-oriented work has been responsible for much of humankind's greatest accomplishments. Gray and Larson (2014) noted that, "project management provides people with a powerfu..
Firm has marginal tax rate-initial cash outflow : Delta Inc. is considering the purchase of a new machine which is expected to increase sales by $10,000 in addition to increasing non-depreciation expenses by $3,000 annually. The firm has a marginal tax rate of 34 percent, and its required rate of re..
Measure of the operating effectiveness of firms management : Which of the following financial ratios is the best measure of the operating effectiveness of a firm's management?
Part of the underwriting process : Which of the following is not part of the underwriting process?
Deduction is made to account for cost of common equity : The primary difference between EVA and accounting net income is that when net income is calculated, a deduction is made to account for the cost of common equity, whereas EVA represents net income before deducting the cost of the equity capital the fi..
Explain your own personal definition of critical thinking : Find three sources that discuss critical thinking. One source should be from the assigned and/or optional readings, and the other two should be found through your own research
Free cash flow-growth or investment projects : An oil drilling company has some free cash flow that is not expected to be used for growth or investment projects. Which method of cash distribution carries more informational content when an announcement is made? Some researchers and analysts have n..
Discuss the rule in sharp v. dawes and the exceptions thereo : Discuss the rule in sharp v. Dawes and the exceptions thereof
Explain how investigator prepares a criminal case for trial : 1) Explain how an investigator prepares a criminal case for trial. 2) Explain the proper courtroom demeanor needed for an investigator and how his/her demeanor, looks, and body language can affect a trial. 3) Find an article from the Web in which an ..

Reviews

Write a Review

 

Financial Management Questions & Answers

  Manipulating both the texas and california power markets

The pinnacle of all financial scandals is arguably the "perfect storm" associated with the former Enron Corporation, which became public knowledge in October 2001. Manipulating both the Texas and California power markets

  What are the primary financial management decisions

What are the 3 primary Financial Management Decisions? Briefly explain both sustainable and internal growth rates, not in formulas.

  Invests the amount saved in income taxes

Twins Invest. Kathryn Ake, of Omaha, Nebraska, plans to invest $3000 in mutual fund for the next 25 years to accumulate savings for retirement. Her twin sister, Kristin, plans to invest the same amount for the same length of time in the same mutual f..

  New return on equity

The common stock and debt of Northern Sludge are valued at $60 million and $40 million, respectively. Investors currently require a 17.0% return on the common stock and a 7.0% return on the debt.

  Evaluate the performance of a company

Evaluate the performance of a company using various financial analytical tools and analyse different patterns of cost behaviour and apply cost-volume-profit analysis to business decisions.

  Area expierneces a sudden or dramatic downturn

How might a bank adjust its credit policies if the area expierneces a sudden or dramatic downturn? Suggest two adjustments the bank should make when applying the five C's of credit in such a situation.

  Citibank plans to increase its project financing

Citibank plans to increase its project financing in the oil industry by $20 billion. Each project is likely to last 10-15 years. How would it raise the money to lend? Would it pay a floating or fixed market rate? How could a project borrower change t..

  Name of financial tool-competitor profiling

Name of financial tool: Competitor profiling

  What is the future value-compounded quarterly

What is the future value of $1,400, placed in a saving account for four years if the account pays 0.10, compounded quarterly?

  Firm is considering an investment in a new machine

A firm is considering an investment in a new machine with a price of $18 million to replace its existing machine. The current machine has a book value of $6 million and a market value of $4.5 million. The new machine is expected to have a four-year l..

  Retirement plan-account assuming a withdrawal period

You are planning to save for retirement over the next 30 years. To do this, you will invest $700 a month in a stock account and $300 a month in a bond account.  When you retire, you will combine your money into an account that pays an EAR of 8%. How ..

  Makes and sells artistic frames for pictures

Donnegal Company makes and sells artistic frames for pictures. The controller is responsible for preparing the master budget and has accumulated the following information for 2014. January February March April May

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd