Using Residual Income as a Measure of Performance Rather Than

question 38

Multiple Choice

Using residual income as a measure of performance rather than return on investment promotes goal congruence because residual income:

• A)places importance on the reduction of underperforming assets.
• B)concentrates on maximising an absolute amount of dollars.
• C)calculates a percentage return rather than an absolute return.
• D)concentrates on maximising the return on sales.

---

Definitions:

Money Supply

The total amount of money available in an economy at a specific time, including cash and deposits.

Opportunity Cost

Sacrificing the chance to gain from other alternatives by committing to one choice.

Real Interest Rate

The interest rate adjusted for inflation, representing the true cost of borrowing and the real yield to lenders or investors.

Equilibrium Interest Rate

The interest rate at which the demand for funds (borrowing) equals the supply of funds (saving), resulting in a stable market condition.