Purchase Solution

Economic Value Added and NPV and IRR

Not what you're looking for?

Ask Custom Question

Explain Economic Value Added and compare it with NPV and IRR methods of capital budgeting in terms of capital budgeting project evaluation methods.

Purchase this Solution
Solution Summary

Economic value added (EVA) provides a useful method for evaluating a company's economic profit and making some important inferences about the company performance based on that. This can be also used as a project evaluation method. This response also compares EVA method with NPV and IRR in brief.

Solution Preview

Economic Value Added, IRR, and NPV:

Economic value added is a method of estimating the company's economic profit by determining the difference between actual rate of return of company on its assets and cost of capital raised by company (Brigham and Houston, 2012). The value created from the difference between rate of return on investment and cost of capital may be positive or negative. If the value is found negative, it means the investment made by the company is not worthwhile. Economic Value Added is computed by multiplying net profit of the company with the value obtained from the difference between the actual return and total cost of capital (Chron, 2016). Today, organization has objectives of wealth maximization of its shareholders that is possible if the ...

Purchase this Solution
Free BrainMass Quizzes
SWOT

This quiz will test your understanding of the SWOT analysis, including terms, concepts, uses, advantages, and process.

Balance Sheet

The Fundamental Classified Balance Sheet. What to know to make it easy.

Transformational Leadership

This quiz covers the topic of transformational leadership. Specifically, this quiz covers the theories proposed by James MacGregor Burns and Bernard Bass. Students familiar with transformational leadership should easily be able to answer the questions detailed below.

Academic Reading and Writing: Critical Thinking

Importance of Critical Thinking

MS Word 2010-Tricky Features

These questions are based on features of the previous word versions that were easy to figure out, but now seem more hidden to me.

View More Free Quizzes
Related BrainMass Solutions

  • Definition of Factors and Cost Measurement

    If the NPV and the IRR arrive at the same ranking order, then the final decision would be the project with the highest NPV and IRR.

  • Payback method for capital budgeting decisions

    NPV for S = $291.74 and IRR for S = 17.86% NPV for L = $500.81 and IRR for L = 15.78% These projects S and L are mutually exclusive and non-repeatable, so we must choose one only.

  • Description of Net Present Value Analysis

    NPV is calculated using the NPV function in excel. The initial investment is not a part of the NPV calculation in excel and is to be added separately.

  • ARR, PP,NPV and IRR

    429025 ARR, PP, NPV and IRR A hospital is considering the purchase of new equipment. - Machine A and Machine B. Machine A has a cost of $100000 and has an expected economic life of five years, after which it has a scrap value: $ 25000.

  • IRR was lower than the cost of capital

    Thus in the cases where IRR is misleading we should focus on NPV and it should be positive. Thus we should only accept those projects where IRR is more than the cost of capital and NPV is positive.

  • Compare KEY DCF AND NON-DCF METHODS

    DCF METHODS: NPV: The NPV represents the value added to the business by the project or the investment. It represents the increase in the market value of the stockholders' wealth.

  • Discount Rate, IRR, NPV

    d) What is the economic interpretation of IRR and NPV? IRR is the rate of return at which the net present value of the propject is equal to zero.

  • Capital Budgeting Analysis for Global Projects

    On the other hand, in using NPV and IRR for overseas projects the main focus will be on the value that will be added or subtracted for the parent company. For the calculation of NPV, the discount rate is required.

  • This posting addresses NPV and IRR equations.

    It is a measure of how much value is either created or added by the investment being measured. Investments with a positive NPV should be considered for investment purposes.

View More Related Solutions