Residual Income Is a Better Measure for Performance Evaluation of an Investment

question 67

Multiple Choice

Residual income is a better measure for performance evaluation of an investment center manager than return on investment because: (CMA adapted)

• A) the problems associated with measuring the asset base are eliminated.
• B) desirable investment decisions will not be rejected by divisions that already have a high ROI.
• C) only the gross book value of assets needs to be calculated.
• D) returns do not increase as assets are depreciateD.
• Residual income indicates those situations with more than a threshold return that should be accepteD.

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