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Advantages and Disadvantages of Economic Value Added

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I need help analyzing the advantages and disadvantages of Economic Value Added, Return on Investment and Economic Profit.


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One of the advantages of economic value added is the fact that this measurement will provide the leadership within an organization with an accurate estimate of the total capital value of profit that is gained after the cost associated with paying off investors has been subtracted. This provides a realistic indicator of the increased value of capital assets that are not of a financial nature that have been gained by engaging in some business ventures such as an investment which utilizes money from investors in order to gain an increased profit, who are seeking a return on their investment. This is very advantageous to an organization that is concerned with keeping track of its non-financial assets, which are actually the assets that usually the assets that contain the most value within a given organization, and are the true indicators of that organization's overall work and economic power. A disadvantage of economic value added is that it does not take into ...

Solution Summary

The advantages and disadvantages of economic value added is provided. The return on investments and economic profits are provided.

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Market Value Added and Synergy

6. Define market value added. Does market value added provide the same performance insights to the corporate executive as economic profit (i.e. EVA)?

3. What are the advantages/disadvantages of tailored value drives versus the balance scorecard?

4. Define synergy. Describe how synergies might enhance a corporation's value.
Unit 6 Questions

2. What might be an example of an incentive to management to focus on maximizing shareholder value?

3. Looking at the recent history of management fraud, what is the potential danger in incentives for maximizing shareholder value?


4. Having established a culture to maximize shareholder value (for example, just-in-time inventory), why would there be a need to implement a corporate-wide verification process?

5. Why should management be cautious in forecasting earnings?

6. What is the inherent danger to stock prices in the requirement that management forecast future sales and earnings?

8. What is the common thread running through mergers and acquisitions and joint ventures in seeking to maximize shareholder value?

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