Because residual income (RI) is a dollar amount, in contrast to a percentage (like return on investment, ROI), RI:
A) Allows, through different discount rates, adjustment for differing levels of risk across investment centers within an organization.
B) Cannot be used to evaluate the financial performance of a given investment center over time.
C) Is less useful than ROI for performance evaluation purposes.
D) Allows for differing investment amounts for different investment centers.
E) Is less useful to stockholders of the company.

Question

Quizplus · Accepted Answer

Residual income takes into account the level of risk of different investment centers within an organization by allowing for adjustment through different discount rates. This makes it a useful tool for performance evaluation across different investment centers.

Because Residual Income (RI) Is a Dollar Amount, in Contrast