A Segment or Department That Has a Negative Contribution Margin

question 103

True/False

A segment or department that has a negative contribution margin is often in jeopardy of being closed.

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Definitions:

Residual Value

The estimated value that an asset will have at the end of its useful life, after depreciation has been deducted.

Useful Life

The estimated duration a fixed asset is expected to be economically useful to an organization, beyond which it may be depreciated or disposed of.

Average Rate of Return

A financial ratio that measures the profitability of an investment, calculated as the average annual profit divided by the initial investment cost.

Present Value Method

An approach to evaluate the current worth of a future cash flow, considering a specific rate of interest or cost of capital.