The Use of Residual Income Encourages Managers to Accept Any

question 22

True/False

The use of residual income encourages managers to accept any project that earns above the minimum rate.

---

Definitions:

Cost of Capital

The rate of return that a company must pay on its investments to satisfy its shareholders or debt-holders.

Cash Flows

All money transactions entering and leaving a firm, with a significant influence on its liquidity.

Interest Payments

The amount paid by a borrower to a lender as compensation for the use of borrowed money.

Debt

Debt refers to money borrowed by one party from another, under the condition that it is to be repaid, usually with interest.