Business, 13.02.2020 22:39 HistoryLee

Mia During the 1990s, the consulting firm Stern, Stewart & Company developed the concept of Economic Value Added, or EVA, to better assess management's performance in maximizing their shareholders' wealth. Allied Biscuit's EVA equals the additional profit created in excess of the after-tax operating income necessary to finance its total after-tax cost of capital, which is expressed in annual dollars. It is computed by subtracting Allied Biscuit's from its In turn, Allied Biscuit's annual cost of capital is calculated by multiplying its total operating capital, which includes its net fixed assets and net operating working capital, by the after-tax percentage cost of capital. OK, given that description, here's a question for you: Compared to the book value, what is the advantage of using the EVA to evaluate the performance of Allied Biscuit's management? Josh Give me a second to think. . . OK, it's better to evaluate the performance of Allied Biscuit's management by using the company's EVA rather than the book value of its shareholders' equity the better the managerial decisions being made, the the after-tax net operating income earned, the the difference between this net operating income and the EVA, or true the cost of capital needed to generate that income, and the economic profit, earned by the company. Mia Nicely done! Does this make your reading of Allied Biscuit's annual report easier? a. Annual dollar cost of capital or percentage cost of capital?b. Net operating profit after taxes or net income?c. Investor supplied or shareholder supplied?d. Greater or less?e. Greater or less?f. Greater or less?

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