The Basic Objective of the Residual Income (RI) Approach to Divisional

question 57

Multiple Choice

The basic objective of the residual income (RI) approach to divisional performance measurement and evaluation is to have a division maximize its:

• A) Return on investment (ROI) rate.
• B) Imputed interest rate charge.
• C) Cash flows, after taxes.
• D) Cash flows in excess of a desired minimum amount.
• E) Operating income in excess of an imputed charge for capital invested in the division.

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Definitions:

Gross Private Domestic Investment

The total capital investment in an economy by private sector entities, excluding government spending.

Durable Goods

Goods not for immediate consumption that can be used over a period of time, such as appliances, cars, and furniture.

Business Inventories

The stocks of goods and materials that firms hold for the purpose of sale or input into production, often used to meet consumer demand or continue production.

Welfare Benefits

Financial assistance provided by the government to individuals or groups in need, aiming to support well-being and economic stability.