Question

Which of the following is a not a decision that management must make before calculating ROI and RI?

A) Should nonproductive assets be included in the average total asset calculation?
B) Should gross book value or net book value of assets be used?
C) Should a simple average of the beginning and ending total liabilities be used?
D) Should a short term focus be used?

Answer 1

Management does not have to decide whether a simple average of the beginning and ending total liabilities should be used before calculating ROI and RI.

Step-by-step explanation:

The decision that management does not have to make before calculating ROI and RI is (C) Should a simple average of the beginning and ending total liabilities be used?

ROI stands for Return on Investment and RI stands for Residual Income. Both of these metrics are used to measure the profitability of a company. The decision to include nonproductive assets in the average total asset calculation, to use gross book value or net book value of assets, and to use a short term or long term focus are all factors that management should consider when calculating ROI and RI.