Busi - 2 What might be an example of an incentive to...

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2. What might be an example of an incentive to management to focus on maximizing shareholder value? EVA (Economic Value Added) helps us to maximize long-term shareholders wealth. It will add the economic value in the shareholder wealth .Managers can decide to withdraw value-destructive activities and invest in projects that will increase the shareholder's wealth. This will lead to an increase in the market value of the company. However, activities that do not increase shareholders value might be critical to customer's satisfaction or social responsibility. For example , Cola-Cola is one of the many companies that adopted EVA for measuring its performance. Its aim, which was to create shareholders wealth, was announced in its annual report. Coca-Cola CEO Roberto Goizueta adopted EVA for turning Coca-Cola into the number one Market Value Added Company. Coca-Cola's stock price increased from $3 to over $60 when it first adopted EVA in the early 1980s. In 1995, Coca-Cola's investor received $8.63 wealth for every dollar they invested.
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This note was uploaded on 12/05/2011 for the course ACC 134 taught by Professor Erik during the Fall '11 term at Colorado.

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Busi - 2 What might be an example of an incentive to...

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