Asked by Mariano Davila III on Jul 11, 2024
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Suppose a company evaluates divisional performance using both return on investment (ROI) and residual income. The company's minimum required rate of return for the purposes of residual income calculations is 12%. If a division has a residual income of $6,000, then its return on investment is less than 12%.
Return On Investment
measures the gain or loss generated on an investment relative to the amount of money invested, indicating the efficiency of the investment.
Residual Income
The net income an investment or project generates above the minimum required rate of return.
Required Rate Of Return
The minimum return an investor expects to achieve from an investment, given its risk level.
- Acquire knowledge on the notion and computational approach of residual income.
- Gain insights into the deployment and implications of return on investment (ROI) for managerial performance assessment.
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Learning Objectives
- Acquire knowledge on the notion and computational approach of residual income.
- Gain insights into the deployment and implications of return on investment (ROI) for managerial performance assessment.
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