Residual Income Is a Better Evaluation Method Than Return on Investment

question 16

True/False

Residual income is a better evaluation method than return on investment because it has a lower required rate of return for the company projects than return on investment does.

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Definitions:

Net Margin

A profitability metric that calculates the percentage of revenue remaining after all operating expenses, interest, taxes, and preferred stock dividends have been deducted.

Balanced Scorecard

A system for strategic planning and management utilized by organizations to ensure business activities are in line with the organization’s vision and strategy, enhance communications both internally and externally, and track the performance of the organization in relation to its strategic objectives.

Internal Process Improvement

The systematic practice of reviewing and enhancing organizational processes to boost efficiency, effectiveness, and quality.

Staff Turnover

The rate at which employees leave a company and are replaced by new hires, affecting the organization's stability and performance.