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There are lots of adjustments to reach the profit figure used (eg capitalising R&D) which should all greater focus on future performance.
WACC is a better reflection of the cost of capital than just interest rates. The organisation has to be able to cover the costs of servicing its capital otherwise it is wasting its time.
Got it and another reason could be that in RI and ROI there are chances that accounting treatment could be manipulated whereas there is no such threat in EVA right?
‘Proper’ EVA has about 160 potential adjustments and I’m sure some of those are subjective. In your simplified EVA, book depreciation (somewhat arbitrary) is replaced by economic depreciation, but there are many assumptions to be made when calculating that.
At least EVA eliminates amounts like provisions for doubtful debts which are open to some manipulation.
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