Why Is It Important That a Manager's Evaluation Be Based

question 43

Essay

Why is it important that a manager's evaluation be based only on those revenues and costs that he or she can control?

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Definitions:

Security Market Line

A graphical representation that shows the expected rate of return of an asset as a function of its systematic risk.

Inherent Risk

The possibility of inaccurate financial statements due to factors other than failure of control, covering areas such as industry characteristics and overall economic environment.

SML

The Security Market Line, a graphical representation of the Capital Asset Pricing Model showing the relationship between the expected return of a security and its beta (systematic risk).

Required Returns

The minimum expected return on an investment, determined by the investor's risk tolerance and the investment's risk level.