which of the following strategies may increase economic value added a. increase profit as a percentage...

which of the following strategies may increase economic value added

a. increase profit as a percentage of capital employed

b. borrow additional funds and invest in asset that earn more than the weight average cost capital.

c. Sell off assets that earn more than the weighted average cast at capital.

d. Increase profit as a percentage of capital employed and borrow additional funds and invest in asset that earn more than the weight average cost capital.

Solutions

Expert Solution

Answer:

Option d : Increase profit as a percentage of capital employed and borrow additional funds and invest in asset that earn more than the weight average cost capital.

Explanation:

A company can improve its economic value added by following either of the two:

> Increasing Revenue

> Decreasing Capital

Revenue can be increased by raising prices or selling additional quantity of good and services. Capital can he reduced by a number of ways such as disinvestment, or increasing economies of a scale.

From the options, increasing profit as a percentage of capital employed and borrowing additional funds for investing in assets that earns more than the weighted average cost of capital can increase economic value added. Selling of assets of the same scale can cause decline in economic value added.

Therefore, the right answer is option d :

Increase profit as a percentage of capital employed and borrow additional funds and invest in asset that earn more than the weight average cost capital.

ekkarill92 answered 1 year ago

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