When residual income is used to evaluate division managers,the goal for each division manager is to increase residual income over time.

Question

Quizplus · Accepted Answer

This statement is true. Residual income is the profits remaining after deducting the cost of capital from the net operating income. When residual income is used to evaluate division managers, they are incentivized to increase profits and reduce the cost of capital in order to increase residual income over time.

When Residual Income Is Used to Evaluate Division Managers,the Goal