Using Economic Value Added (EVA) to calculate residual income, the cost of capital employed is a. the standard percentage cost of capital multiplied by the average capital employed. b. the standard percentage cost of capital multiplied by the total capital employed. c. the actual percentage cost of capital multiplied by the average capital employed. d. the actual percentage cost of capital multiplied by the total capital employed.

Question

Business

Maci Howe

21 October, 22:43

Using Economic Value Added (EVA) to calculate residual income, the cost of capital employed is a. the standard percentage cost of capital multiplied by the average capital employed. b. the standard percentage cost of capital multiplied by the total capital employed. c. the actual percentage cost of capital multiplied by the average capital employed. d. the actual percentage cost of capital multiplied by the total capital employed.

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Garrett Nichols · Answer 1

A. The standard percentage cost of capital multiplied by the average capital employed.

Explanation:

In corporate finance and economics and as a part of fundamental analysis, The Economic Value Added (EVA) is defined as an estimate of a firm's economic profit, or the value created in excess of the required return of the company's shareholders. EVA is the net profit less the capital charge ($) for raising the firm's capital.

Therefore it is the the standard percentage cost of capital when multiplied by the average capital that was used.