Which one of the following is a correct statement about residual income?
A) Its goal is to maximize profits of an investment center.
B) It is less effective for evaluating investment centers than ROI.
C) It is the ratio of controllable margin to the minimum rate of return on average operating assets.
D) It evaluates performance by comparing the return of an investment center with the company's minimum rate of return.

Question

Quizplus · Accepted Answer

Residual income evaluates the performance of an investment center by comparing its return with the company's minimum rate of return. It is considered to be a better measure of performance than ROI since it takes into account the cost of capital and provides a clearer picture of the economic value added by the investment center.

Which One of the Following Is a Correct Statement About