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

Multiple Choice

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.
Problems in measuring the asset base,gross versus net book values,and cost of capital are present in both residual income and ROI.Residual income avoids the suboptimization problem with high return divisions.