Business, Management and Accounting
4 years ago

EVA Underestimates Value Generated Compared to NPV: Study Reveals

1 view
Proyecciones Financieras y Valoración
Value Creation and its Measurement: A Critical Look at EVA
Ignacio Vélez–Pareja

Paper Summary

The article examines Economic Value Added (EVA) and its comparison to Net Present Value (NPV) in measuring project or firm value. EVA uses accounting profit, while NPV uses net cash flows. The study reveals instances where EVA undervalues projects compared to NPV. Real EVA calculations are proposed, along with considerations for cost of capital. Different methods of calculating EVA and Market Value Added (MVA) are compared to NPV results.

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