What Are Some of the Limitations of Using ROI,residual Income,and

question 44

Essay

What are some of the limitations of using ROI,residual income,and EVA to measure the performance of investment centers?

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Definitions:

Initial Cost

The acquisition cost of an asset or investment, which might include the purchase price and any other expenses necessary to get the asset ready for use.

Profitability Index

A financial tool used to measure the relative profitability of an investment project, calculated as the present value of future cash flows divided by the initial investment.

Required Rate

The Required Rate, often known as the required rate of return, is the minimum annual percentage earned by an investment that will induce individuals or companies to put money into a particular project or investment.

Cash Flows

The total amount of money being transferred into and out of a business, considered as the lifeblood of corporate finance.