The Fitzroy Division of Brisbane Enterprises Has Negative Residual Income

question 1

Multiple Choice

The Fitzroy division of Brisbane Enterprises has negative residual income of $540 000. Fitzroy's management is considering an investment opportunity that will reduce this negative amount to $400 000. The investment:

• A) should be pursued because it is attractive from divisional and corporate perspectives.
• B) should be pursued because it is attractive from a divisional perspective although not from a corporate perspective.
• C) should be pursued because it is attractive from a corporate perspective, although not from a divisional perspective.
• D) should not be pursued because it is unattractive from a divisional perspective although it is attractive from a corporate perspective.

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Definitions:

Economy

Economy encompasses the system by which goods and services are produced, distributed, and consumed within a society, influenced by governmental, cultural, and environmental factors.

Goods and Services

The tangible products (goods) and intangible items (services) that are produced and provided to meet the needs and wants of consumers.

Market Economy

An economic system in which supply and demand drive the production and distribution of goods and services, with minimal government intervention.

Specialization

Focus on a narrow area of expertise or production to increase efficiency and output.