Quiz on Return On Investment and Residual Income

What does ROI stand for?

• Return Of Investment

• Residual Of Income

• Rate Of Income

• Return On Investment

What is the formula for calculating Residual Income?

• Controllable Profit - Interest charge on controllable investment

• Total Revenue - Total Expenses

• Controllable Investment - Interest charge on controllable profit

• Net Operating Profit - Total Assets

Which of the following is an advantage of ROI?

• It encourages investment in new assets

• It is based on cash flow

• It is a widely used measure

• It is complex and costly

What is a disadvantage of ROI?

• It is based on cash flow

• It can be manipulated by managers

• It encourages investment in new technology

• It is difficult to calculate

What does RI stand for?

• Residual Income

• Return Income

• Revenue Investment

• Residual Investment

Which of the following is an advantage of Residual Income?

• It is an absolute measure

• It is not accounting-based

• It avoids dysfunctional decision making

• It is easy to compare different sizes

What is a disadvantage of Residual Income?

• It is based on cash flow

• It is a relative measure

• It is difficult to determine a fair target

• It encourages investment in new technology

What does EVA stand for?

• Equity Value Assessment

• Economic Value Added

• Economic Value Assessment

• Earnings Value Analysis

What is NOPAT?

• Net Overall Profit After Tax

• Net Operating Profit And Tax

• Net Operating Profit After Tax

• Net Operating Profit And Total

What is the formula for calculating EVA?

• NOPAT + (Total liabilities x WACC)

• NOPAT - (Adjusted invested capital x WACC)

• NOPAT + (Adjusted invested capital x WACC)

• NOPAT - (Total assets x WACC)