Page 191 - 5.2 i. Manac Costing ITC Summarised Notes
P. 191
PERFORMANCE MEASUREMENT
Why RI is superior to ROI (cont)
• Suboptimal decisions are discouraged as managers
will invest in projects that yield a return higher than
the cost of capital.
• Contribution by divisions to group profit is clearly
measured.
• Comparability is enhanced as different required
rates of return may be used to reflect different risk
profiles of the divisions.
191
