Which of the following is a disadvantage of both residual income and ROI?
A)They are both absolute measures of return.
B)They are both difficult to calculate.
C)They both do not discourage myopic behavior.
D)All of these are disadvantages of both ROI and residual income.

Question

Quizplus · Accepted Answer

Both residual income and ROI do not discourage myopic behavior, as they only focus on short-term financial performance and do not consider long-term impacts or non-financial factors. This can lead managers to make decisions that improve the metrics in the short-term but harm the company in the long-term. Option A is not a disadvantage of residual income or ROI as they are both relative measures of return. Option B is not entirely true as calculating residual income can be more straightforward than ROI in some cases.

Which of the Following Is a Disadvantage of Both Residual