Residual income is a performance evaluation that is used in conjunction with, or instead of, return on investment (ROI). In many cases, residual income is preferred to ROI because: (CIA adapted)
A) residual income is a measure over time, while ROI represents the results for one period.
B) residual income concentrates on maximizing absolute dollars of income rather than a percentage return, as with ROI.
C) the imputed interest rate used in calculating residual income is more easily derived than the target rate that is compared to the calculated ROI.
D) average investment is employed with residual income while year-end investment is employed with ROI.

Question

Quizplus · Accepted Answer

Residual income focuses on maximizing absolute dollars of income, which aligns with the goal of increasing overall wealth, whereas ROI focuses on percentage returns, which may not always align with maximizing total income.

Residual Income Is a Performance Evaluation That Is Used in Conjunction