Which One of the Following Is Not a Limitation Shared

question 127

Multiple Choice

Which one of the following is not a limitation shared by residual income (RI) and return on investment (ROI) divisional performance measures?

• A) They are both short-term performance indicators.
• B) They both may fail to capture significant value-creating activities of the organization.
• C) They are both subject to short-term manipulation on the part of divisional managers.
• D) Both are subject to a number of measurement issues that complicate their use in practice.
• E) They both relate, in percentage terms, earnings to the level of investment in each division.

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Definitions:

Money Supply

The total financial resources existing in an economy at a certain time.

Open Market Operations

These are financial activities where central banks buy or sell government securities in the open market to control the money supply and influence interest rates.

Required Reserve Ratio

The fraction of deposits that a bank is mandated by regulations to hold in reserve and not loan out.

Excess Reserves

The amount of reserves that a bank holds beyond the required minimum, which can be loaned out to generate earnings.