A Company May Prefer to Use Residual Income Over Return

question 228

Multiple Choice

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

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

---

Definitions:

Federal Securities Acts

Laws enacted by the U.S. federal government designed to regulate the securities industry and protect investors from fraudulent practices.

Significant Losses

Large or impactful financial, material, or reputational reductions experienced by individuals, organizations, or entities.

Private Securities Litigation Reform Act

A 1995 United States federal law that increased the standards for initiating securities fraud litigation to protect companies from frivolous lawsuits.

Illegal Conduct

Activities or actions that are forbidden by law, regulations, or statutes.