Unlike ROI, residual income can encourage a short-run orientation.

Name: Unlike ROI, residual income can encourage a short-run orientation.
Brand: Quizplus
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Question

Quizplus · Accepted Answer

Residual income is calculated as the difference between actual income and a target income, which is typically based on a company's cost of capital. This can encourage managers to focus on short-term results that will boost actual income, even if these results are not sustainable in the long run.

Unlike ROI, Residual Income Can Encourage a Short-Run Orientation