Final answer:
The correct formulation for EVA, given the rate of return on capital (r) and the divisional cost of capital (k), would typically be EVA = NOPAT - (k * invested capital). However, none of the provided options correctly reflects the standard calculation, and the typically understood formula involves the difference between r and k.
Step-by-step explanation:
An alternative specification for EVA (Economic Value Added) is a way to measure a company's financial performance based on the residual wealth calculated by deducting the cost of capital from its operating profit. When we consider the divisional cost of capital, denoted as k, which is the minimum required rate of return for the division, and the rate of return on capital, denoted as r, we can determine the correct formula for EVA. Among the options provided, the correct one is Option 3: EVA = r * k. This is the formula to calculate the Economic Value Added when both the rate of return and cost of capital are considered. However, for clarification, it's essential to note that the typical calculation for EVA is: EVA = NOPAT - (k * invested capital), where NOPAT is net operating profit after taxes and k is the weighted average cost of capital (WACC). The options given may be a misconception, as the concept of EVA is commonly misunderstood. The formula usually takes into account the difference between the return on capital (r) and the cost of capital (k).