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.

Question

Quizplus · Accepted Answer

Residual income is designed to avoid suboptimization by considering the cost of capital, encouraging managers to make decisions that align with overall company goals rather than just maximizing ROI.

ROI Used to Evaluate the Performance of an Investment Center