Which of the Following Statements Most Accurately Describes Residual Income

question 96

Multiple Choice

Which of the following statements most accurately describes residual income?

• A)It indicates how efficiently a division uses its average assets to generate sales and thereby profits.
• B)It indicates how much operating income the division earns on every dollar of sales.
• C)It indicates how much return a division generates on average assets.
• D)It indicates how much extra operating income a division generates above the minimum acceptable level.

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Definitions:

Closely Held Corporation

A corporation owned by a small group of people who might also be involved in its management, with shares that are not publicly traded.

Stock Market

A public market for the trading of company stock and derivatives at agreed prices.

Dividend Stream

Dividend Stream is the sequence of cash payments made to shareholders of a corporation over time, typically derived from the company's earnings.

Required Return

The least amount of return expected by an investor from putting money into a certain asset, while taking its risk profile into account.