Final answer:
The incorrect statement is D) 'calculating ROI based on the net book value of assets gives managers an incentive to continue using old, outdated equipment because its low net book value results in a higher ROI.' This is incorrect as managers consider other factors beyond just ROI for asset replacement decisions.
Step-by-step explanation:
When using financial performance measures, the incorrect statement among the options provided is D) 'In general, calculating ROI based on the net book value of assets gives managers an incentive to continue using old, outdated equipment because its low net book value results in a higher ROI.'
This is not accurate because while a lower net book value may result in a nominally higher ROI, it does not necessarily incentivize managers to continue using old, outdated equipment. Instead, managers are usually encouraged to replace or update assets when they impede productivity or when the cost of maintaining these older assets becomes too high.
It's important to clarify that average total assets are indeed used for the calculation of Return on Investment (ROI) and Residual Income (RI), as stated in option B). The usage of average inventory and the balanced scorecard, as mentioned in options A) and C), are commonly accepted as part of financial performance assessment.
The incorrect statement is D) 'calculating ROI based on the net book value of assets gives managers an incentive to continue using old, outdated equipment because its low net book value results in a higher ROI.'