--%>
Assignment Help - homework help

Which parameter good measures value creation

Which parameter good measures value creation; the Economic Value Added (EVA), the CVA (Cash Value Added) or the economic profit?

E

Expert

Verified

The Economic Value Added (EVA) is the profit before interests minus the book value of the company multiplied with the WACC. The Economic Profit (EP) is the net income minus the book value of the shares multiplied with the needed return to equity. The Cash Value Added (CVA) is the profit before interests plus depreciation, minus economic depreciation, minus the cost of the utilized resources.

Fernández (2001) demonstrates that EP, EVA and CVA do not measure value creation in a company for all periods.  These parameters can prove to be of specific usefulness to executives and to the business units while setting objectives, but this does not make any sense to provide the EP, EVA and CVA the meaning of value creation for each period.

   Related Questions in Corporate Finance

  • Q : Cost of Equity AB Corporation has 16%

    AB Corporation has 16% cost of equity, 35% tax rate, and debt-to-equity ratio of 30%. XY Corporation has 30% tax rate and debt-to-equity ratio of 40%. Both AB and XY are in the same business of selling automotive parts. If the riskless rate is 4% and the expected retu

    		•
  • Q : Problem on stock market John Wong is a

    John Wong is a fresh graduate and has a limited amount of funds for investments. He expects that the Hong Kong stock market will fall soon but he is not familiar with derivatives. In order to gain more money to buy a car, he explores engaging in Hang Seng Index (HSI)

    		•
  • Q : Is cash flow is a flow of cash to

    The often known as "cash flow" that is net income plus depreciation, is a flow of cash, but is this a flow to the company or to the shareholders?

    		•
  • Q : Problem on implied exchange rate a) The

    a) The Australian firm sold a ship to a Swiss firm and gave the Swiss client an option of paying either AUS10,000 or SF15,000 in 9 months. (i) In above, the Australian firm efficiently gave the Swiss client a free option to buy up

    		•
  • Q : Evaluating Beta of a Corporation

    Baldwin Corporation is planning to expand into the business of providing on-demand movies. Baldwin has debt-to-equity ratio of .25, its pretax cost of debt is 9%, and its marginal tax rate is 40%. The Harrington Corporation is already in the on-demand movie business,

    		•
  • Q : Explain the result of volatility

    Explain the result of volatility structure.

    		•
  • Q : Describe nominal gross domestic product

    Nominal gross domestic product: If GDP of a particular year is estimated on the base of price of similar year, it is termed as nominal GDP.

    		•
  • Q : DCF Analysis AB Corp. is in the

    AB Corp. is in the business of making white-board markers. They are computing the potential of investing in some new equipment that will enhance their manufacturing process.  The initial cost of the latest machinery is $470,000 plus a one-time installation cost o

    		•
  • Q : Is this better to repurchase shares or

    Assuming a company needs to distribute money to shareholders of it, is this better to repurchase shares or to distribute dividends?

    		•
  • Q : Problem on raising new capital AB

    AB Corporation has 3 million shares of common stock selling at $19 each. It also contains $25 million in bonds with coupon rate of 8%, selling at par. AB requires $10 million in new capital that it can raise by selling stock at $18, or bonds at 9% interest. The expect

    		•