ROI Used to Evaluate the Performance of an Investment Center

question 60

Multiple Choice

ROI used to evaluate the performance of an investment center manager can sometimes lead to suboptimization.A performance measure designed to avoid the risk of suboptimization is:

• A)operating income.
• B)residual income.
• C)segment income.
• D)the DuPont model.

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Definitions:

Perfectly Competitive

A market structure characterized by a large number of small firms, identical products, and free entry and exit, leading to price taking behavior.

Long-Run Equilibrium

A state in which all factors of production and costs are variable, allowing firms to enter and exit the market, and no economic forces are pushing for change.

Efficient Scale

The level of production at which a company or industry can produce its products at the lowest average cost, optimizing resource use.

Identical Costs

Costs that are the same in amount or value, often referring to uniform expenses across different units or operations.