Question

For purposes of evaluating the on-going performance of a division, it is generally recommended that assets in the ROI calculation be measured at ______.

Option 1:
Historical Cost

Option 2:
Current Market Value

Option 3:
Book Value

Option 4:
Liquidation Value

Answer 1

To evaluate a division's ongoing performance, assets in the ROI calculation should be measured at current market value, as it reflects their true earning power based on market conditions.

Step-by-step explanation:

For evaluating the on-going performance of a division, it is generally recommended that assets in the ROI (Return on Investment) calculation be measured at current market value. Evaluating ROI using current market value provides the most up-to-date and relevant information about the division's performance and reflects the true earning power of the assets. This approach aligns with one method of asset valuation mentioned which estimates the value by considering what another party in the market is willing to pay for it, akin to the activity in the secondary loan market. Using historical cost or book value may not reflect the true economic value of the assets, and liquidation value is typically more relevant for situations where the company is being dissolved.