Question 11.RQ.4: It has been argued that many businesses are overcapitalised....
It has been argued that many businesses are overcapitalised. If this is true, what may be the reasons for businesses having too much capital and how can EVA^{\circledR} help avoid this problem?
If businesses are overcapitalised it is probably because insufficient attention is given to the amount of capital that is required. Management incentive schemes that are geared towards generating a particular level of profits or achieving a particular market share without speci-fying the level of capital invested can help create such a problem. EVA^{\circledR} can help avoid the problem by focusing on the need to obtain a profitable return on capital invested.
Related Answered Questions
Question: 11.12
Verified Answer:
Assuming no growth, PV of future EVA^{\circ...
Question: 11.SE.4
Verified Answer:
Virgo plc
There is no single correct answer to thi...
Question: 11.SE.2
Verified Answer:
Aquarius plc
There are a number of ways in which t...
Question: 11.SE.6
Verified Answer:
Pisces plc
Adjusted NOPAT
£m
£m
Operatin...
Question: 11.E.2
Verified Answer:
There are a number of ways in which the accuracy o...
Question: 11.S-TQ.1
Verified Answer:
Romeo plc
Adjusted net assets (capital investe...
Question: 11.A.6
Verified Answer:
A constant growth rate beyond the planning horizon...
Question: 11.7
Verified Answer:
The formula suggests that to increase EVA^{...
Question: 11.8
Verified Answer:
EVA^{\circledR}can be calculated as...
Question: 11.RQ.3
Verified Answer:
The problem with taking changes in the market valu...