General Studies · Financial Performance Measurement
Which of the following is a valid argument for an organization choosing Residual Income (RI) over Return on Investment (ROI) as a performance measure?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1ROI is a relative measure, so it may lead managers to reject profitable large projects that have a lower percentage return than existing operations, whereas RI avoids this sub-optimization.✓
- 2ROI is unaffected by the age of assets.
- 3ROI ignores short-term results completely.
- 4ROI requires an estimate of the cost of capital, whereas RI does not.
Correct answer
ROI is a relative measure, so it may lead managers to reject profitable large projects that have a lower percentage return than existing operations, whereas RI avoids this sub-optimization.
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