Business Unit Performance Measurement

3 important questions on Business Unit Performance Measurement

Cost of invested capital

Cost of capital * divisional assets (investering)

Fundamental problem EVA

Is that EVA is based on accouting income while the decision to invest is based on the present value of cash flows.

How should divisional assets be measured?

  • Gross book value vs Net book value
  • Historical cost vs current cost
  • Beginning, ending of average balance

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