The Major Advantage of Residual Income as a Performance Measure

question 190

True/False

The major advantage of residual income as a performance measure is that it gives consideration to not only a minimum rate of return on investment but also the total magnitude of income from operations earned by each division.

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Definitions:

Standard Deviation

A measure of the amount of variation or dispersion of a set of values, widely used in finance to gauge the volatility of an investment.

Probability Distribution

A statistical function that describes all the possible values and likelihoods that a random variable can take within a given range.

Variances of Stocks

Measures of the dispersion of returns for a given stock, used to assess the risk associated with holding the stock.

Return on Stock

The gain or loss on an investment in stock, represented as a percentage of the investment's initial cost.