When evaluating the performance of division managers,which definition of invested capital should be used?
A)total assets
B)total assets less current liabilities
C)total assets less total liabilities
D)total assets or total assets less current liabilities

Question

Quizplus · Accepted Answer

The choice of invested capital should reflect the actual amount of capital that the division manager has control over to generate a return. Total assets or total assets less current liabilities both provide a good representation of the invested capital, as they include all of the resources allocated to the division, including both equity and debt. Total liabilities are not subtracted because the division manager does not have control over them, and they represent obligations that must be paid regardless of the division's performance.

When Evaluating the Performance of Division Managers,which Definition of Invested