Residual Income Is Similar to the ________ Notion of Profit

question 109

Multiple Choice

Residual income is similar to the ________ notion of profit as being the amount left over after all costs, including the cost of the capital employed in the division, are subtracted.

• A) accountant's
• B) manager's
• C) shareholder's
• D) economist's

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Definitions:

New Venture

A newly established business enterprise, particularly one that is entrepreneurial in nature, aiming to meet a marketplace need by developing a viable business model around a product, service, process, or platform.

Certainty Equivalent Approach

A method to evaluate risk where uncertain future cash flows are converted into certain cash flows under the assumption of risk neutrality.

Risk-Free Rate

The interest rate excluding all risk premiums. The risk-free rate consists of the pure rate and an inflation adjustment. It is approximated by the three-month treasury bill rate. Written as kRF.

Real Option

The value of additional decision-making opportunities available to an investor or company once an initial investment has been made.