A Company May Prefer to Use Residual Income Over Return

question 94

Multiple Choice

A company may prefer to use residual income over return on investment for performance evaluation because:

• A)return on investment is absolute figure but residual income is a ratio.
• B)residual income is more likely to lead to goal congruence than return on investment.
• C)it is easier to calculate residual income than return on investment.
• D)residual income considers three elements but return on investment considers only two elements.

---

Definitions:

Desired State

The ideal condition or situation that an individual, group, or organization aims to achieve in the future through its efforts and strategies.

Actual State

The current condition or reality of a situation, organization, or system, as opposed to its intended or theoretical state.

Corrective Action

A set of actions taken to fix or improve a process, product, or behavior after identifying a problem or nonconformity.

Desired States

Preferred outcomes or conditions that an individual, group, or organization aspires to achieve in the future.