Do we use today's cost of capital or do we use a higher cost of capital. The key to understanding a performance metric is to see how well it performs in rigorous testing. The answer is empirical. The difficulty is that there is a great deal of anecdotal evidence that touts the success of metrics, but much of this is provided by consulting firms. Conclude that the market focuses more on earnings than EVA .
Recommendation Use both traditional metrics and value-added metrics.
Reliance on a single measure is not warranted. Future research Rigorous and independent testing of value metrics Need to apply thorough testing to see whether value metrics help investment performance. Need to control for market movements and risk.