Managerial performance can be measured in various ways, including return on investment (ROI) and residual income (RI). A good reason for using RI rather than ROI is:

Question

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Goal congruence is more likely to be promoted by using RI, as it focuses on the residual income earned above a minimum required rate of return, rather than absolute financial performance. This encourages managers to make decisions that create value for the company rather than simply maximizing ROI.

Managerial Performance Can Be Measured in Various Ways, Including Return