When the manager's evaluation is based on residual income, the manager should accept a project if the residual income is:
A) positive.
B) negative.
C) equal to the ROI.
D) greater than net income.

Question

Quizplus · Accepted Answer

Residual income is the net operating income that remains after deducting a charge for the cost of capital. When the manager's evaluation is based on residual income, the manager should accept a project if the residual income is positive. A positive residual income signifies that a project is generating more income than the cost of capital.

When the Manager's Evaluation Is Based on Residual Income, the Manager