Return on Investment (ROI), Residual Income (RI), and Economic Value

question 141

Multiple Choice

Return on investment (ROI) , residual income (RI) , and Economic Value Added (EVA®) all have in common which one of the following characteristics?

• A) They all lead to goal-congruency problems when used to evaluate subunit performance.
• B) They all incorporate nonfinancial performance measures into the metric.
• C) They all rely on the use of data used in the preparation of financial statements (for external reporting).
• D) They are all relative (rather than absolute) performance indicators.
• E) They all incorporate in the financial performance metric some measure of investment.

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Definitions:

Equal Payments

Regular payment amounts made or received over a period, typically in the context of loans, leases, or annuities, where each payment is of the same value.

Compounded Semiannually

Compounded Semiannually refers to the process of applying interest to an initial amount of money (principal) twice a year, where the amount of interest is added to the principal at each compounding period.

Interest Rate

The percentage of a loan or savings amount that is charged as interest to the borrower or paid to the investor, typically expressed on an annual basis.

Annual Rate

The interest rate for a period of one year, often used for comparing the yields of financial products.