Residual income:
A) is an alternative to ROI for manager performance evaluation..
B) is the amount of income earned in excess of a predetermined minimum level of return on assets.
C) is equal to ROI - (Average operating assets * Minimum required rate of return).
D) both A and B.

Question

Quizplus · Accepted Answer

Residual income is indeed an alternative to Return on Investment (ROI) for evaluating a manager's performance, as it takes into account not just the income generated but also the cost of capital. It is calculated as the amount of income earned in excess of a predetermined minimum level of return on assets, which aligns with both choices A and B.

Residual Income