Question

Major disadvantage of residual income approach is

a. It can be used to compare performance of divisions of same sizes

b. It can be used to compare performance of divisions of different sizes

c. It cannot be used to compare performance of divisions of same sizes

d. It cannot be used to compare performance of divisions of different sizes

Select one:

a. It cannot be used to compare performance of divisions of different sizes

b. It can be used to compare performance of divisions of same sizes

c. It can be used to compare performance of divisions of different sizes

d. It cannot be used to compare performance of divisions of same sizes

Answer 1

the detal dilutin Investment will be encouraged when acting in their for Evaluating the economic performance of the divisen Pessomance measument Puidual Income approach residual income can be diyired as diuisional contribution len cost of capital charge Inwestmunt en anels employed by Advantage of rulduat encome, is that it and to mernchen the managerial espormante Contur there is greater probability that manages Olen Interest, also act in but Interest of company - (Auswer) At Camat katsold to compare performance. (Disadvantage) i of drison of different sizes Residual Income super facem diz dvantages of being on about casu difficult to compare the prosperimente, el . dionica with that of other diviem ar companies of a different size leto take crample for more understanding. - following purwm to duo duisen w x and az of a large maniefacturing Company Profit Investment 15600000 cost of capital which mean that it x, C6) 3120000 12 000 000 960000 90 al lot . 2, 72 Remate 20.00 x2 dicidas 12 soy: $12 ODUNDO (196010000) 9 (#3190000 $ 15600000) Return on 97yeshinin | Retten Inwesen has higher Heturn on veshtront படJulie has higher income $ 2400000 $ 1560000 3) Revideo Income 1.000000 - 0.1 X 96000000] (9120000 Renderal 400 abx mement - D2X* 15600000] This bonomple shows that Rl es subject to a edige effect but Role mode The larger size for the Cruision ( which is more than 6 times that of*s diuisen) Cien come By lower profitabiting as measured by Roi. Then RI is not good way to compone divisten that differently differ greadly