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

question 143

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 are less likely to 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:

Seniority System

A rule or policy within an organization that grants preference to employees with longer tenure for promotions, benefits, and layoffs.

Preferential Treatment

A situation where someone or something is given more favorable conditions or treatment over others.

Foreign Corporation

A corporation that conducts business in a state in which it is not incorporated.

Equal Employment

Equal employment refers to the principle of non-discrimination in hiring, promoting, compensating, and other employment practices, ensuring all individuals have equal opportunities regardless of various protected characteristics.