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

question 30

Multiple Choice

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

• 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.

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Definitions:

Coefficient

A numerical or constant quantity placed before and multiplying the variable in an expression (e.g., in 2x, 2 is the coefficient).

Ambient Air

The natural air in the environment surrounding a particular location, often considered in terms of its quality or temperature.

Ampacity

The maximum current-carrying capacity of a wire or device.

Conductor

A device or material that permits current to flow through it easily.