Return on investment (ROI): Return on investment is a profitability ratio that represents the percentage return on the investment made. It is calculated by dividing the Net Income by the Average total assets. The formulas to calculate the ROI are as follows: R O I = O p e r a t i n g I n c o m e A v e r a g e t o t a l a s s e t s Residual Income (RI): Residual Income is the income earned over and above the expected rate of return on assets invested in the business. The formulas to calculate the Residual Income is as follows: R e s i d u a l I n c o m e = O p e r a t i n g I n c o m e – ( A v e r a g e a s s e t s × R e q u i r e d r a t e o r R e t u r n ) To indicate: The benefit of using Residual Income over ROI for performance evaluation

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Answer 1

Question

Chapter 10, Problem 12Q

To determine

Concept introduction:

Return on investment (ROI):

Return on investment is a profitability ratio that represents the percentage return on the investment made. It is calculated by dividing the Net Income by the Average total assets. The formulas to calculate the ROI are as follows:

ROI = Operating IncomeAverage total assets

Residual Income (RI):

Residual Income is the income earned over and above the expected rate of return on assets invested in the business. The formulas to calculate the Residual Income is as follows:

Residual Income = Operating Income – (Average assets ×Required rate or Return)

To indicate:

The benefit of using Residual Income over ROI for performance evaluation

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Students have asked these similar questions

Which of the following is not a measure that management can use in evaluating and controlling investment center performance? a.residual income b.negotiated price c.income from operations d.rate of return on investment

Show and contrast how return on investment and residual income are used to evaluate the performance of investment centers.

What is the primary disadvantage of utilizing revenue from operations to evaluate investment centers' performance?

Answer 2

Question

Chapter 10, Problem 12Q

To determine

Concept introduction:

Return on investment (ROI):

Return on investment is a profitability ratio that represents the percentage return on the investment made. It is calculated by dividing the Net Income by the Average total assets. The formulas to calculate the ROI are as follows:

ROI = Operating IncomeAverage total assets

Residual Income (RI):

Residual Income is the income earned over and above the expected rate of return on assets invested in the business. The formulas to calculate the Residual Income is as follows:

Residual Income = Operating Income – (Average assets ×Required rate or Return)

To indicate:

The benefit of using Residual Income over ROI for performance evaluation

Expert Solution & Answer

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Check out a sample textbook solution

See solution

Answer 3

Question

Chapter 10, Problem 12Q

To determine

Concept introduction:

Return on investment (ROI):

Return on investment is a profitability ratio that represents the percentage return on the investment made. It is calculated by dividing the Net Income by the Average total assets. The formulas to calculate the ROI are as follows:

ROI = Operating IncomeAverage total assets

Residual Income (RI):

Residual Income is the income earned over and above the expected rate of return on assets invested in the business. The formulas to calculate the Residual Income is as follows:

Residual Income = Operating Income – (Average assets ×Required rate or Return)

To indicate:

The benefit of using Residual Income over ROI for performance evaluation

Expert Solution & Answer

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Check out a sample textbook solution

See solution

Answer 4

Question

Chapter 10, Problem 12Q

To determine

Concept introduction:

Return on investment (ROI):

Return on investment is a profitability ratio that represents the percentage return on the investment made. It is calculated by dividing the Net Income by the Average total assets. The formulas to calculate the ROI are as follows:

ROI = Operating IncomeAverage total assets

Residual Income (RI):

Residual Income is the income earned over and above the expected rate of return on assets invested in the business. The formulas to calculate the Residual Income is as follows:

Residual Income = Operating Income – (Average assets ×Required rate or Return)

To indicate:

The benefit of using Residual Income over ROI for performance evaluation

Expert Solution & Answer

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Check out a sample textbook solution

See solution

Answer 5

Chapter 10, Problem 12Q

To determine

Concept introduction:

Return on investment (ROI):

Return on investment is a profitability ratio that represents the percentage return on the investment made. It is calculated by dividing the Net Income by the Average total assets. The formulas to calculate the ROI are as follows:

ROI = Operating IncomeAverage total assets

Residual Income (RI):

Residual Income is the income earned over and above the expected rate of return on assets invested in the business. The formulas to calculate the Residual Income is as follows:

Residual Income = Operating Income – (Average assets ×Required rate or Return)

To indicate:

The benefit of using Residual Income over ROI for performance evaluation

Answer 6

Chapter 10, Problem 12Q

To determine

Concept introduction:

Return on investment (ROI):

Return on investment is a profitability ratio that represents the percentage return on the investment made. It is calculated by dividing the Net Income by the Average total assets. The formulas to calculate the ROI are as follows:

ROI = Operating IncomeAverage total assets

Residual Income (RI):

Residual Income is the income earned over and above the expected rate of return on assets invested in the business. The formulas to calculate the Residual Income is as follows:

Residual Income = Operating Income – (Average assets ×Required rate or Return)

To indicate:

The benefit of using Residual Income over ROI for performance evaluation

Answer 7

Chapter 10, Problem 12Q

To determine

Concept introduction:

Return on investment (ROI):

Return on investment is a profitability ratio that represents the percentage return on the investment made. It is calculated by dividing the Net Income by the Average total assets. The formulas to calculate the ROI are as follows:

ROI = Operating IncomeAverage total assets

Residual Income (RI):

Residual Income is the income earned over and above the expected rate of return on assets invested in the business. The formulas to calculate the Residual Income is as follows:

Residual Income = Operating Income – (Average assets ×Required rate or Return)

To indicate:

The benefit of using Residual Income over ROI for performance evaluation

Answer 8

Expert Solution & Answer

Answer 9

Expert Solution & Answer

Answer 10

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Answer 11

Ch. 10 - Explain how centralized and decentralized...Ch. 10 - Why does decentralization create the need for...Ch. 10 - What is the controllability principle and why is...Ch. 10 - Prob. 4Q Ch. 10 - Prob. 5Q Ch. 10 - Prob. 6Q Ch. 10 - Prob. 7Q Ch. 10 - Prob. 8Q Ch. 10 - Return on investment may be separated into two...Ch. 10 - Prob. 10Q

Solution Summary: The author explains that Return on investment is a profitability ratio that represents the percentage return on the investment made. Residual Income is the income earned over and above the expected rate of return.

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