Question

Which of the following statements is correct? Managers will be more likely to pursue projects that will benefit the entire company when being evaluated on ROI instead of residual income. A manager might reject a proposal using ROI that the manager would accept using residual income. A project that is not acceptable using residual income calculations may be acceptable when ROI is calculated.

Answer 1

The manager may reject a proposal utilizing ROI that perhaps the manager accepts the use of recurring revenue.

Explanation:

Return on investment is a measure of quality that is used to determine investment efficacy or evaluate a variety of different assets with quality. ROI attempts, by comparison with investment costs, to accurately measure the returns of a particular transaction. For order to calculate ROI, the investor's gains (or returns) are distributed between the investment costs. As a percentage, the outcome is shown.

$\text { ROI }=\frac{\text { CURRENT VALUE OF INVESTMENT-COST OF INVESTMENT }}{\text { COST OF INVESTMENT }}$

For example, a shareholder is buying an $\ 800,000$ worth of property. The investor sold the estate at $\ 2,000,000$ two years later.

$\text{ ROI } = \frac{(2,000,000-800,000)}{(800,000)}=1.5\%$