Residual income:
A) is most useful as a way to compare individual divisions of different sizes.
B) is the amount of income earned in excess of a predetermined minimum rate of return on assets.
C) should not be used as a way to evaluate the manager of an investment centre.
D) is often called economic value added (EVA).

Question

Quizplus · Accepted Answer

Residual income is the amount of income earned by a division or project in excess of the minimum rate of return required by the organization. It is considered an effective measure of the economic profit generated by a division or project.

Answer: D 
 Residual income is often referred to as economic value added (EVA). EVA is a financial performance metric that calculates the residual income generated by a business after accounting for the cost of capital. It is a measure of the value created by a business above and beyond its cost of capital.

Residual Income