Which of the following is not true about residual income (RI)?
A)Influenced by size.
B)Managers maximize an absolute amount.
C)Managers maximize percentages.
D)Stakeholders want residual income to achieve goal congruence.
E)Managers evaluated on residual income choose new project only if residual income is positive.

Question

Quizplus · Accepted Answer

Residual income (RI) is a measure used to assess the absolute dollar amount of profit that a business unit generates above a minimum required return on its operating assets. It is not about maximizing percentages, which is more related to measures like Return on Investment (ROI). Managers and stakeholders focus on RI to ensure that the absolute amount of profit exceeds a certain benchmark, which aligns with goal congruence and encourages managers to undertake projects that will positively contribute to the company's overall wealth, rather than focusing solely on percentage-based metrics.

Which of the Following Is Not True About Residual Income