Why Is an Adjustment Made to Assets When Determining Residual

question 76

Multiple Choice

Why is an adjustment made to assets when determining residual income?

• A)The assets to which these relate have no financing cost associated with them.
• B)The company incurs financing costs, which is not within divisional managers' control.
• C)This amount is not controllable by the managers being evaluated.
• D)Only assets that incur no interest costs are included as part of invested capital.

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Definitions:

Short-Term Financing

A type of funding intended to meet immediate and temporary financial needs of a business.

Corporate Debt Securities

Financial instruments issued by corporations to borrow money from investors.

Security Sold Privately

A financial instrument, such as a stock or bond, that is sold directly to investors rather than through a public market.

Directly

Pertains to having an immediate connection or interaction without any intermediaries.