Which of the following is an accounting measure of income minus a charge for required return on an accounting measure of investment?
A)Residual income (RI).
B)Return on investment (ROI).
C)Accrual rate of return (ARR).
D)Required rate of return (RRR).
E)Economic value added (EVA).

Question

Quizplus · Accepted Answer

Residual income (RI) is the measure of income minus a charge for required return on an accounting measure of investment. It represents the economic profit of a company and is calculated by deducting a threshold rate of return (required rate of return - RRR) from the net operating income of the company's assets. Thus, option A is the correct choice. The other options are not equivalent to this measure. ROI (Return on investment) is simply the ratio of income generated to the amount invested, ARR (Accrual rate of return) is a measure of profitability of a project, and RRR (Required rate of return) is the minimum return that investors require from an investment. EVA (Economic value added) is a measure of a company's value creation that factors in the cost of capital.

Which of the Following Is an Accounting Measure of Income