Which of the following statements comparing ROI and residual income is correct?
A) ROI is more useful as a performance measure for a single investment center.
B) Residual income is a better comparative measure than ROI.
C) ROI and residual income are equally good performance measures for a single investment center.
D) Residual income is more useful as a performance measure for a single investment center.

Question

Quizplus · Accepted Answer

Residual income is a more accurate performance measure for a single investment center because it takes into account the cost of capital used to make the investment. ROI only considers the return on the investment but ignores the cost of capital. Therefore, residual income provides a clearer indication of the economic value added by the investment center.

Which of the Following Statements Comparing ROI and Residual Income