If the ROI of a project is greater than the hurdle rate,the residual income will be:
A)equal to operating income.
B)greater than zero.
C)greater than operating income.
D)greater than average invested assets.

Question

Quizplus · Accepted Answer

If the ROI of a project exceeds the hurdle rate, it implies that the project is generating a return that is greater than the cost of capital. Therefore, there is surplus income resulting from the project (residual income). This surplus income is in addition to the cost of capital, which means that it is greater than zero. Therefore, the correct answer is B, which states that the residual income will be greater than zero.

If the ROI of a Project Is Greater Than the Hurdle