Question 1

Which of the following actions-all else equal-will decrease a firm's EVA?

Accepted Answer

A) The firm raises its prices but ships the same amount of product. 
B) The firm reduces its inventory. 
C) The firm increases its borrowing to repurchase some of its shares. 
D) The firm increases its accounts receivable.

Question 2

Economic income = cash flow - economic depreciation.

Accepted Answer

A) True 
 B)False

Question 3

A firm has an average investment of $1,000 during the year. During the same time, the firm generates after-tax earnings of $150. Calculate the economic value added (EVA)for the firm. (The cost of capital is 10 percent.)

Accepted Answer

A) $100 
B) $50 
C) $120 
D) $150

Question 4

A firm has an average investment of $10,000 during the year. During the same time, the firm generates after-tax income of $2,000.
Calculate the economic value added (EVA)for the firm. (The cost of capital is 15 percent.)

Accepted Answer

A) $500 
B) $1,500 
C) $2,000 
D) $1,000

Question 5

EVA can be increased by reducing assets employed.

Accepted Answer

A) True 
 B)False

Question 6

Shareholders typically rely on independent auditors to monitor the performance of their managers.

Accepted Answer

A) True 
 B)False

Question 7

Briefly explain the term qualified opinion issued by the auditors.

Accepted Answer

The answer of Briefly explain the term qualified opinion issued...

Exam 12: Agency Problems and Investment

Which of the following actions-all else equal-will decrease a firm's EVA?

Economic income = cash flow - economic depreciation.

A firm has an average investment of $1,000 during the year. During the same time, the firm generates after-tax earnings of $150. Calculate the economic value added (EVA) for the firm. (The cost of capital is 10 percent.)

A firm has an average investment of $10,000 during the year. During the same time, the firm generates after-tax income of $2,000. Calculate the economic value added (EVA) for the firm. (The cost of capital is 15 percent.)

EVA can be increased by reducing assets employed.

Shareholders typically rely on independent auditors to monitor the performance of their managers.

Briefly explain the term qualified opinion issued by the auditors.