Page 119 - MAC4861_2 Costing class slides part 2
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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.
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