Unformatted text preview: ant to lend to such firms. 4. Is EVA a good measure for managerial performance? Please let us know the best measurements for managerial performance / compensations. EVA is one of the best measures for managerial performance evaluation. It is a better measure than profitability etc. 5. For non‐profit sectors (e.g., governments…), how can we measure their performance? It is an important question, but one which we will not be spending a lot of time on. The fundamental idea that is common between for‐profit and non‐profit organizations is that of cost benefit analysis. The basic idea of cost benefit analysis is that to maximize anything, we have to equate the marginal cost to the marginal benefit. In the case of a for‐profit firm, we are basically concerned with shareholder value maximization. So we try to equate the return on the marginal project with the cost of equity to maximize share value (i.e. make sure that we invest in all the projects with a RONA greater than WACC). In the case of non‐profits, depending on our objective, we can do a similar thing. Say if you are involved in AIDS vaccination in Africa, your objective may be to maximize the number of people you vaccinate given the resource constraints. In this case, you...
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- Winter '14
- Finance, managerial performance, marginal cost, high tech firms, bond holders