Managerial Performance Can Be Measured in Many Different Ways Including

question 28

Multiple Choice

Managerial performance can be measured in many different ways including return on investment (ROI) and residual income.A good reason for using residual income instead of ROI is that

• A)Residual income can be computed without regard to identifying an investment base.
• B)Appropriate goal congruence behavior is more likely to occur when using residual income.
• C)Residual income is well accepted in many organizations and often used in the financial press.
• D)ROI does not take into consideration both the investment turnover ratio and return-on-sales percentage.
• E)An imputed interest rate (cost of capital)does not have to be determined when using residual income.

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Definitions:

Split-Up

The splitting up of a company into two or more companies.

Companies

Legal entities formed of individuals, shareholders, or members, aimed at operating for profit.

Excess Return

The return on an investment that exceeds the risk-free rate or a comparative benchmark or index.