Asked by Aparna Narayanan on Jul 24, 2024

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Residual income should be used to evaluate an investment center rather than a cost or profit center.

Residual Income

The net operating income that an investment center earns above the minimum required return on its operating assets.

Investment Center

A business segment whose manager has control over cost, revenue, and investments in operating assets.

Cost Center

A business segment whose manager has control over cost but has no control over revenue or investments in operating assets.

  • Comprehend the use and significance of residual income and return on investment (ROI) in evaluating investment centers.
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Amelia AkomaJul 28, 2024
Final Answer :
True
Explanation :
Residual income is a measure of the economic value added by an investment center, which takes into account the cost of capital used to generate the income. It is a more accurate way of evaluating the performance of an investment center than traditional methods like cost or profit centers, which do not consider the cost of capital.