Suppose a manager's performance is to be evaluated by residual income.Which of the following will NOT result in an increase in the residual income figure for this manager,assuming other factors remain constant?
A) An increase in sales.
B) An increase in the minimum required rate of return.
C) A decrease in expenses.
D) A decrease in operating assets.

Question

Quizplus · Accepted Answer

An increase in the minimum required rate of return would actually decrease the residual income figure, as it increases the cost of capital and reduces the amount of residual income available to the manager. A, C, and D would all increase the residual income figure by increasing the net operating income or reducing the amount of operating assets required to generate that income.

Suppose a Manager's Performance Is to Be Evaluated by Residual