Residual Income Is Sometimes Used to Overcome the Tendency of ROI

question 76

True/False

Residual income is sometimes used to overcome the tendency of ROI to discourage investments that are profitable for the company, but that lower the division's ROI.

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Definitions:

Debt-Equity Ratio

A financial measure that highlights the ratio of shareholders' equity to debt in a company's capital structure, often employed to scrutinize its leverage.

Flotation Cost

The overall expenses related to the issuance of new shares or bonds, encompassing fees for underwriting, legal services, and registration.

Startup Cost

Initial expenses incurred during the process of creating a new business, including but not limited to legal fees, marketing, and inventory costs.

Capital Structure

The composition of a company's liabilities and equity, including debt and equity financing, used to finance the company's operations and growth.