Author Question: Using residual income as a measure of performance rather than return on investment promotes goal ... (Read 117 times)

littleanan · **on:** Mar 6, 2021

Question 1

Times Corporation, whose tax rate is 30%, has two sources of funds: long-term debt with a market value of $6,500,000 and an interest rate of 7%, and equity capital with a market value of $18,000,000 and a cost of equity of 11%. Times Corporation's after-tax cost of debt is ________.
◦ 9.38%
◦ 4.90%
◦ 7.00%
◦ 11.00%

Question 2

Using residual income as a measure of performance rather than return on investment promotes goal congruence because residual income ________.
◦ places importance on the reduction of underperforming assets
◦ calculates a percentage return rather than an absolute return
◦ concentrates on maximizing an absolute amount of dollars
◦ concentrates on maximizing the return on sales

jgranad15 · **Reply #1 on:** Mar 6, 2021

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