I actually dated a girl named Eva for a few months. Anyway… does anyone know why A isn’t the right answer? Which of the following actions is least likely to result in a consistently higher economic value added (EVA)? A) Reduce the volatility in net operating profit after tax (NOPAT). B) Postponing investment while operating at or above capacity for extended periods of time. C) Increase the accounts receivable turnover ratio. D) Reduce operating expenses.
I get C for that one. For A, if you reduce volatility (i.e. you’re more stable) then that reduces your WACC.
b or c
nope. I would think reduced NOPAT vol would result in lower cost of capital, thereby lowering EVA.
B? all about investing in NPV postive projects…can’t do LT by postponing investment.
Reducing volatility is another way of saying smoothing. Smoothing doesn’t always result in a high NOPAT.
Maybe because less volatility will decrease required return?? Kinda out of left field, who knows. Is the answer B?
has to be b, c - increase sales likely to increase EBIT(1-t)
I’m with clipper…lower Re from lower volatility. Also, volatility could imply some negative NOPAT flows…that’s not generally conducive to higher valuations (unless you live in the real world but that is another matter).
Answer is B. Postponing would eventually lead to higher costs so lower EVA. So says Schweser… thank you for your help, though, I didn’t think about the potential impact on cost of capital.
clipper1 Wrote: ------------------------------------------------------- > nope. I would think reduced NOPAT vol would result > in lower cost of capital, thereby lowering EVA. Lower cost of capital would increase EVA
Right… increase EVA. That’s what I meant. Thanks LanceTX
In regards to B, if you’re at capacity for extended periods of time then wouldn’t it make sense to expand capacity? I chose C because changing turnover ratios can’t be a sustained (i.e. consistent) way to add value.
C ? or D Increase NOPAT by increasing revenue, reducing taxes, expenses, reduce Cost of Equity…