The residual income approach is less likely to lead to goal congruence relative to use of the return on investment approach.

Question

Quizplus · Accepted Answer

The residual income approach is more likely to lead to goal congruence because it encourages managers to make decisions that are in the best interest of the overall company, rather than focusing solely on maximizing their own division's return on investment (ROI). This approach considers both the division's income and the cost of capital, promoting decisions that exceed the company's cost of capital, thus aligning individual goals with corporate goals.

The Residual Income Approach Is Less Likely to Lead to Goal