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:

Approval

The consent or agreement to a plan, idea, or action.

401(k) Plan

A type of retirement savings plan sponsored by an employer that allows employees to save and invest a portion of their paycheck before taxes are taken out.

PBGC

The Pension Benefit Guaranty Corporation (PBGC) is a U.S. government agency that protects the retirement incomes of American workers in private-sector defined benefit pension plans.

ERISA Fiduciary Advisor

A financial advisor who is required by the Employee Retirement Income Security Act to act in the best interest of participants in retirement plans.