Residual income:
A) is most useful as a way to compare individual divisions of different sizes.
B) is the amount of income earned in excess of a predetermined minimum rate of return on assets.
C) should not be used as a way to evaluate the manager of an investment center.
D) is often called economic value added (EVA).

Question

Quizplus · Accepted Answer

Residual income is the amount of income earned in excess of a predetermined minimum rate of return on assets, making option B the correct choice. Option A is incorrect because residual income is not only used for comparing individual divisions of different sizes. Option C is incorrect as residual income is a good way to evaluate the performance of investment center managers. Option D is partially correct, as residual income is also known as economic value added (EVA) but it is not the only name.

Residual Income