A Problem with Using Residual Income as a Performance Measure

question 44

Multiple Choice

A problem with using residual income as a performance measure is that a corporation with a:

• A)high investment turnover ratio always has a higher residual income than a corporation with a smaller investment turnover ratio.
• B)larger dollar amount of assets is likely to have a higher residual income than a corporation with a smaller dollar amount of assets.
• C)high return on sales always has a higher residual income than a corporation with a smaller return on sales.
• D)None of these answers are correct.

---

Definitions:

Budget Constraint

The limitations on the spending decisions of consumers based on their income and the prices of goods and services.

Demand Curve

A graphical representation showing the relationship between the price of a good or service and the quantity demanded by consumers.

Perfectly Inelastic

Perfectly inelastic describes a market scenario where the quantity demanded or supplied does not change regardless of price fluctuations.

Supply

The total amount of a certain good or service that is available for purchase at a particular price level and time.