Indicate Whether Each of the Following Statements Is True or False

question 43

Short Answer

Indicate whether each of the following statements is true or false.
_____ a) Use of residual income to evaluate managers of an investment center may avoid some of the suboptimization that can occur with use of return on investment as a performance measure.
_____ b) Residual income is stated as an absolute amount, not a ratio or percentage.
_____ c) One disadvantage with residual income as a measure of performance is that it causes larger divisions to appear to do better than smaller divisions.
_____ d) A balanced score card includes various nonfinancial performance measures but no financial performance measures.
_____ e) The balanced scorecard is a holistic approach to evaluating management and division performance.

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Definitions:

Well-diversified Portfolio

An investment portfolio constructed to minimize risk by spreading investments across various asset classes.

Beta

The volatility or risk associated with a specific investment relative to the broader market.

Systematic Risk

The unavoidable risk associated with the whole market or a segment of it, referred to as market risk, that diversification cannot mitigate.

Chen, Roll, Ross

Refers to a model or theory in financial economics developed by the researchers Chen, Roll, and Ross, typically associated with their work on the arbitrage pricing theory or factor models.