Compared to Return on Investment (ROI), Residual Income (RI) May

question 99

Multiple Choice

Compared to return on investment (ROI) , residual income (RI) may be a better measure of the financial performance of an investment center because:

• A) Problems associated with measuring the investment base are eliminated.
• B) Of the fact that desirable investment opportunities will not be neglected by divisions currently earning high rates of return.
• C) Only the gross book value of assets needs to be calculated.
• D) Returns do not increase as assets are depreciated.
• E) The arguments over the implicit cost of capital (discount rate) are largely eliminated.

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