Residual Income Is a Better Measure for Performance Evaluation of an Investment

question 87

Multiple Choice

Residual income is a better measure for performance evaluation of an investment center manager than return on investment because (CMA adapted)

• A)The problems associated with measuring the asset base are eliminated.
• B)Desirable investment decisions will not be neglected by high-return divisions.
• C)Only the gross book value of assets needs to be calculated.
• D)The arguments about the implicit cost of interest are eliminated.

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Definitions:

F-ratio

A statistic used in ANOVA tests that compares the variance between group means to the variance within groups, indicating if any statistically significant differences exist.

Critical Value

A value on the test statistic scale exceeding which leads to the rejection of the null hypothesis.

One-way ANOVA

A statistical test that compares the means of three or more independent groups to determine if there is a significant difference among them.

DfWG

Degrees of Freedom Within Groups, a term used in statistical analysis indicating the number of independent pieces of information within groups that can vary for calculating the variability or variance.