Delmar Corporation Is Considering the Use of Residual Income as a Measure

question 19

Multiple Choice

Delmar Corporation is considering the use of residual income as a measure of the performance of its divisions. What major disadvantage of this method should the company consider before deciding to institute it?

• A) this method does not take into account differences in the size of divisions.
• B) investments may be adopted that will decrease the overall return on investment.
• C) the minimum required rate of return may eliminate desirable investments.
• D) residual income does not measure how effectively the division manager controls costs.

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Definitions:

Exponentiation

A mathematical operation involving the raising of a number to the power of another number, typically expressed as \(a^{b}\).

Division

A mathematical operation where one number (the dividend) is divided by another (the divisor).

Division

A mathematical operation where a number is divided by another, resulting in a quotient.

Exponentiation

A mathematical operation involving raising a base number to the power of an exponent, signifying repeated multiplication of the base.