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To: JRI who wrote (66223)	9/19/1998 3:50:00 PM
From: Chuzzlewit	Read Replies (2) \| Respond to of 176387

John, some random thoughts on EVA. Basically, the idea is to use what financial analysts call the average weighted cost of capital (WCC), and to compare the WCC to earnings. But unfortunately, it is not so easy to measure the cost of capital (at least the equity portion). Now this approach is really just the reverse of the old project selection criterion where you accepted new project only if they exceeded the WCC. So while it makes theoretical sense, I think its difficult to apply in a practical manner, especially when you consider the timing aspect. For example, the return on a project may be negative for the first few years before turning sharply positive, and when measured against the WCC th project is clearly acceptable. But when you look at accounting returns over those first few years they do not meet EVA criteria. The reason is that project selection is a multiperiod analysis, but the EVA method as I understand it is a single period hurdle. I'd be interested in reading the citation you are referring to . Do you have a URL? TTFN, CTC