ROI is determined by dividing the controllable margin by the average operating assets. Whereas, residual income is computed by deducting the minimum return on average operating assets from the controllable margin. The disadvantage of using the ROI method to evaluate a company’s performance.

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Chapter 25, Problem 25Q

To determine

Introduction: ROI is determined by dividing the controllable margin by the average operating assets. Whereas, residual income is computed by deducting the minimum return on average operating assets from the controllable margin.

The disadvantage of using the ROI method to evaluate a company’s performance.

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In what way can the use of ROI as a performance measure for investment centers lead to bad decisions? How does the residual income approach overcome this problem?

How may using ROI as a success indicator for investment centers lead to poor decisions? How does the residual income strategy address this issue?

In what way can the use of ROI as a performance measure for investment centers lead to baddecisions?

Answer 2

Question

Chapter 25, Problem 25Q

To determine

Introduction: ROI is determined by dividing the controllable margin by the average operating assets. Whereas, residual income is computed by deducting the minimum return on average operating assets from the controllable margin.

The disadvantage of using the ROI method to evaluate a company’s performance.

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Answer 3

Question

Chapter 25, Problem 25Q

To determine

Introduction: ROI is determined by dividing the controllable margin by the average operating assets. Whereas, residual income is computed by deducting the minimum return on average operating assets from the controllable margin.

The disadvantage of using the ROI method to evaluate a company’s performance.

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Answer 4

Question

Chapter 25, Problem 25Q

To determine

Introduction: ROI is determined by dividing the controllable margin by the average operating assets. Whereas, residual income is computed by deducting the minimum return on average operating assets from the controllable margin.

The disadvantage of using the ROI method to evaluate a company’s performance.

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Answer 5

Chapter 25, Problem 25Q

To determine

Introduction: ROI is determined by dividing the controllable margin by the average operating assets. Whereas, residual income is computed by deducting the minimum return on average operating assets from the controllable margin.

The disadvantage of using the ROI method to evaluate a company’s performance.

Answer 6

Chapter 25, Problem 25Q

To determine

Introduction: ROI is determined by dividing the controllable margin by the average operating assets. Whereas, residual income is computed by deducting the minimum return on average operating assets from the controllable margin.

The disadvantage of using the ROI method to evaluate a company’s performance.

Answer 7

Chapter 25, Problem 25Q

To determine

Introduction: ROI is determined by dividing the controllable margin by the average operating assets. Whereas, residual income is computed by deducting the minimum return on average operating assets from the controllable margin.

The disadvantage of using the ROI method to evaluate a company’s performance.

Answer 8

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Answer 11

Ch. 25 - Prob. 1Q Ch. 25 - Prob. 2Q Ch. 25 - Prob. 3Q Ch. 25 - 4. Ken Bay questions the usefulness of a master...Ch. 25 - Prob. 5Q Ch. 25 - Prob. 6Q Ch. 25 - Prob. 7Q Ch. 25 - Prob. 8Q Ch. 25 - Prob. 9Q Ch. 25 - Prob. 10Q

ROI is determined by dividing the controllable margin by the average operating assets. Whereas, residual income is computed by deducting the minimum return on average operating assets from the controllable margin. The disadvantage of using the ROI method to evaluate a company’s performance.

Solution Summary: The author explains the advantages and disadvantages of using the ROI method to evaluate a company's performance.

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Chapter 25 Solutions