To Avoid Suboptimization,many Companies Prefer to Evaluate Their Investment Centers

question 112

Multiple Choice

To avoid suboptimization,many companies prefer to evaluate their investment centers using:

• A) Residual income instead of return on investment.
• B) Return on investment instead of residual income.
• C) Gross margin instead of contribution margin.
• D) Sales instead of income.

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Definitions:

Individual Security

A financial instrument such as a stock or bond that represents an ownership stake or debt obligation in a company or entity.

Total Risk

The sum of systematic and unsystematic risks affecting an investment or portfolio.

Systematic Risk

The risk inherent to the entire market or market segment, often impossible to mitigate through diversification alone.

Unsystematic Risk

Unsystematic risk, also known as company-specific risk or idiosyncratic risk, is the type of uncertainty that comes with a company or industry that can be mitigated through diversification.