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

question 52

Multiple Choice

Residual income is a better measure for performance evaluation of an investment center manager than return on investment (ROI) 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)returns do not increase as assets are depreciated.
• E)the arguments over the cost of capital are eliminated.

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