Which of the following statement(s) is/are true?
(A) If a division's return on investment (ROI) exceeds its cost of capital, then its residual income is positive.
(B) If a division's cost of capital equals its return on investment (ROI), then its residual income is zero.
A) Only (A) is true.
B) Only (B) is true.
C) Both of these are true.
D) Neither of these is true.

Question

Quizplus · Accepted Answer

Residual income is calculated as the net operating income minus the product of the cost of capital and the division's average operating assets. If ROI exceeds the cost of capital, residual income is positive. If ROI equals the cost of capital, residual income is zero.

Which of the Following Statement(s) Is/are True