Asked by Parker Nugent on Jul 28, 2024
Verified
Braham Farms has a return on investment of 15 per cent. A Braham division, which currently has a return on investment of 13 per cent and $375 000 of residual income, is contemplating a large investment that will (1) reduce divisional return on investment and (2) produce residual income of $60 000. If Braham strives for goal congruence, the investment:
A) should not be approved because it reduces divisional return on investment.
B) should not be approved because the division's return on investment is less than the corporate return on investment before the investment is considered.
C) should be approved because it produces $60 000 residual income for the division.
D) should be approved because, after acquisition, the division's return on investment and residual income are both positive numbers.
Residual Income
The income that remains after all required costs of capital and operating expenses have been paid.
Return on Investment
A financial ratio that calculates the profitability of an investment by dividing the profit from the investment by the cost of the investment.
Goal Congruence
The alignment of individual, team, or department goals with the overall objectives of the organization to ensure everyone is working towards the same outcomes.
- Distinguish between different financial performance metrics and their implications for decision-making.
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Learning Objectives
- Distinguish between different financial performance metrics and their implications for decision-making.
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