Managers May Inappropriately Use the Residual Control Rights

question 1

Multiple Choice

Managers may inappropriately use the residual control rights:

• A) to pay themselves exorbitant perquisites.
• B) not to divert assets through transfer pricing.
• C) to take on unprofitable projects.
• D) to invest in positive NPV projects.

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Definitions:

Return On Investment

A financial metric used to evaluate the efficiency of an investment or compare the efficiency of multiple investments.

Residual Income

Income that continues to generate after the initial effort has been expended, often used as a metric to evaluate the performance of investment centers within companies.

Profit

The financial gain achieved when the revenues generated from business activities exceed the expenses, costs, and taxes involved in maintaining the activity.

Consistently

Consistently refers to acting or performing in the same manner over time, ensuring uniformity and reliability in behavior or outcomes.