Because Residual Income (RI) Is a Dollar Amount, in Contrast

question 122

Multiple Choice

Because residual income (RI) is a dollar amount, in contrast to a percentage (like return on investment, ROI) , RI:

• A) Allows, through different discount rates, adjustment for differing levels of risk across investment centers within an organization.
• B) Cannot be used to evaluate the financial performance of a given investment center over time.
• C) Is less useful than ROI for performance evaluation purposes.
• D) Allows for differing investment amounts for different investment centers.
• E) Is less useful to stockholders of the company.

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Definitions:

Rationalization

An ego defense mechanism in which one creates acceptable reasons for unwanted or undesirable behavior.

Intellectualization

A defense mechanism in which reasoning is used to block confrontation with an unconscious conflict and its associated emotional stress.

Pleasure Principle

The pursuit of gratification that characterizes id functioning.

Primary Process Thought

A term from psychoanalytic theory referring to the unorganized, illogical, and irrational thought characteristic of the unconscious mind.