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Chapter 9




               6.3 EVA evaluation









                              Advantages                                    Disadvantages


                      Measure of performance                        Numerous adjustments
                       directly linked to shareholder                 required
                       wealth
                                                                     Assumptions made when
                      Closer to cash flow so avoids                  calculating WACC make it
                       distortion to accounting profit                difficult/potentially inaccurate
                       by accounting policies chosen
                                                                     Absolute figure does not
                      Can capitalise long-term value                 facilitate comparisons
                       adding expenditure reducing
                       incentive to take a short-term                Based on historical data
                       view                                           whereas shareholders are
                                                                      interested in future
                      Easy decision rule                             performance

                      Makes divisional managers
                       aware of the cost of finance




































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