Assigning an aggressive cost to existing capital use raises the the investment hurdle rate. EVA© is a registered trademark of Stern Stewart & Co. |
Let's look at an example of an investment decision after applying EVA. If you have $1000 at 8% and an equity position valued at 12%, now the average cost of capital is 10% - which sets the minimum expected return from an investment in order to break even. In this environment, a 6% investment opportunity looks what? Yes, unacceptable. |
No math presented on this screen. |