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.

---

Definitions:

Total Liabilities

Total Liabilities represent the sum of all financial obligations a company owes to outside parties, including loans, accounts payable, and mortgages.

Note Payable

A financial obligation or loan evidenced by a written promise to pay a specific amount on a future date or over a certain period.

Current Liability

Financial obligations or debts that a company is expected to settle within one year or within its normal operating cycle.

Current Assets

Assets that are expected to be converted into cash, sold, or consumed within one year or within the business's normal operating cycle, whichever is longer.