Question

Which of the following can result in an increase in firm value?
I. Reducing net capital expenditures on existing assets
II. Increasing the reinvestment rate of the firm
III. Improving operating margins on existing assets

Select one:

a. I only

b.  I and II only

c. I and III only

d.  II and III only

e. I, II, and III only

f. None of the above

Which of the following statements is true concerning EVA?

I. EVA will be positive when the firm's return on capital is higher than its cost of capital
II. Management may be tempted to inflate current EVA by sacrificing future value creation
III. EVA measures the rate of return over a specific period of time

Select one:

A. I only

B. II only

C. III only

D. I and II only

E. I and III only

F. II and III only

Answer 1

1. d.  II and III only (reducing net capital expenditure will effect firms growth and value in the future negatively.
2. d I and II only ( EVA is not rate of return in EVA = NOPAT - WACC * Capital Charge)

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