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

Question

Quizplus · Accepted Answer

Both residual income and ROI can encourage myopic behavior because they focus on short-term results rather than long-term value creation. Residual income can incentivize managers to delay investments that would benefit the company in the long run, while ROI can lead to a focus on projects with quick payoffs rather than those that may generate greater returns over time. Both measures also have limitations in that they are absolute measures of return, and do not take into account the cost of capital or other external factors.

Which of the Following Is a Disadvantage of Both Residual