Residual income is a better measure for performance evaluation of an investment center manager than return on investment (ROI)because: (CMA adapted)
A)the problems associated with measuring the asset base are eliminated.
B)desirable investment decisions will not be neglected by high return divisions.
C)only the gross book value of assets needs to be calculated.
D)returns do not increase as assets are depreciateD.

Question

Quizplus · Accepted Answer

Residual income encourages managers to make decisions that are beneficial to the company as a whole, even if they might lower the division's ROI, thus preventing the neglect of desirable investments.

Residual Income Is a Better Measure for Performance Evaluation of an Investment