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

question 17

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:

Merchandiser

A business or person engaged in the sale of goods, typically those purchased from manufacturers and sold to consumers.

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A comprehensive financial planning document that includes all of the lower-level budgets within an organization, projecting its overall financial activities.

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Sales Budget

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