Question

The two approaches that can be used in practice to estimate EVA for a business unit (or company as a whole) are the ______ approach.

Option 1:
Market-Based Approach and Cost-Based Approach

Option 2:
Operating Approach and Financing Approach

Option 3:
Static Approach and Dynamic Approach

Option 4:
Quantitative Approach and Qualitative Approach

Answer 1

The correct approaches to estimate Economic Value Added (EVA) for a business unit are the Operating Approach and Financing Approach, highlighting how a company generates value from its operational efficiency and financial strategy. Option 2.

Step-by-step explanation:

The two approaches that can be used in practice to estimate Economic Value Added (EVA) for a business unit or company as a whole are the Operating Approach and Financing Approach. Therefore, the correct answer is Option 2: Operating Approach and Financing Approach. The Operating Approach calculates EVA by taking net operating profit after taxes and subtracting the capital charge of the company, which represents the company's cost of capital. On the other hand, the Financing Approach separates the business into operating and financing components to distinguish between returns on operations and the cost or benefit of financing decisions.