Question

You have been presented with an investment opportunity that would yield a rate of return of 15%. Her ROI is currently at 16%. The company's expected return is 14%. Would she most likely accept this opportunity if her performance is being measured by                                                 

ROI

Residual Income

ROI	Residual Income
Yes	Yes

ROI	Residual Income
No	No

ROI	Residual Income
Yes	No

ROI	Residual Income
No	Yes

Answer 1

Rate of return of investment = 15%

Current Return on investment(ROI) = 16%

Company's expected retuen = 14%

Since the rate of return of investment is lower than the current ROI, she would not accept the proposal if her performance is measured by ROI. However rate of return of investment is higher than the company's expected return, so she would be ready accept the proposal if her performance is measured by Residual income.

Answer:-

ROI - No, Residual Income - Yes