To Avoid Suboptimization,many Companies Prefer to Evaluate Their Investment Centers

question 112

Multiple Choice

To avoid suboptimization,many companies prefer to evaluate their investment centers using:

• A) Residual income instead of return on investment.
• B) Return on investment instead of residual income.
• C) Gross margin instead of contribution margin.
• D) Sales instead of income.

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Definitions:

Unlevered Firm

A company or business that operates without the use of borrowed money or debt in its capital structure.

Unlevered Cost

The cost of an investment that has not been affected by the inclusion of debt, often referenced in the context of cost of capital.

After-Tax Net

The amount of money that remains after all taxes have been deducted from revenue or income.

Annual Interest

The interest amount that is earned or paid on a financial instrument in one calendar year.