Question

Which of the following segment performance measures will decrease if there is an increase in the...

Which of the following segment performance measures will decrease if there is an increase in the interest expense for that segment?

Return on Investment Residual Income
A) Yes Yes
B) No Yes
C) Yes No
D) No No
Business   Accounting   
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Answer #1

If there is an increase in interest expense for segment there will be no decrease in return on investment and residual income because in case of return on investment we take earning before interest and tax that means we do not deduct interest so increase in interest expense will not decrease return on investment. Similarly in case of residual income we take net operating profit after tax in which also interest is not included.

So correct answer is D) return on investment-no, residual income-no

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