Final answer:
Investment in ROI and RI measures helps investors evaluate the performance and profitability of investments, compare investment options, and make informed decisions based on risk and return.
Step-by-step explanation:
The purpose of defining investment in ROI (Return on Investment) and RI (Residual Income) measures is to assess the performance and profitability of an investment. ROI is a financial metric that calculates the return generated from an investment relative to its cost, while RI measures the residual income generated by an investment subtracting the minimum required return. These measures aid in decision-making by evaluating the effectiveness and efficiency of investments, allowing investors to compare different investment options and make informed choices based on risk and return.
For example, if a company is considering two investment projects, Project A and Project B, they can use ROI and RI measures to determine which project will provide a higher return and residual income, taking into account the associated risks. By analyzing the potential returns and comparing them to the cost of the investment, investors can make more strategic and profitable investment decisions.
In summary, defining investment in ROI and RI measures helps investors evaluate the performance and profitability of investments, compare investment options, and make informed decisions based on risk and return.