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    Ri Roi

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    ssregens82
    The document defines ROI (return on investment) and RI (residual income) using the formulas TI = A * ir for target income, I/A for ROI, and I - TI for RI, where A is assets, ir is interest rate, TI is target income, and I is actual income. It provides examples of calculating ROI and RI for existing, new, and combined businesses to demonstrate that managers are incentivized to accept new businesses when ROI or RI is higher compared to existing businesses.

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    Ri Roi

    Uploaded by

    ssregens82
    94 views1 page
    The document defines ROI (return on investment) and RI (residual income) using the formulas TI = A * ir for target income, I/A for ROI, and I - TI for RI, where A is assets, ir is interest rate, TI is target income, and I is actual income. It provides examples of calculating ROI and RI for existing, new, and combined businesses to demonstrate that managers are incentivized to accept new businesses when ROI or RI is higher compared to existing businesses.

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    cost accounting

    Original Title

    RI ROI

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    The document defines ROI (return on investment) and RI (residual income) using the formulas TI = A * ir for target income, I/A for ROI, and I - TI for RI, where A is assets, ir is interest rate, TI is target income, and I is actual income. It provides examples of calculating ROI and RI for existing, new, and combined businesses to demonstrate that managers are incentivized to accept new businesses when ROI or RI is higher compared to existing businesses.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as XLS, PDF, TXT or read online from Scribd
    Download as xls, pdf, or txt
    94 views1 page

    Ri Roi

    Uploaded by

    ssregens82
    The document defines ROI (return on investment) and RI (residual income) using the formulas TI = A * ir for target income, I/A for ROI, and I - TI for RI, where A is assets, ir is interest rate, TI is target income, and I is actual income. It provides examples of calculating ROI and RI for existing, new, and combined businesses to demonstrate that managers are incentivized to accept new businesses when ROI or RI is higher compared to existing businesses.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as XLS, PDF, TXT or read online from Scribd
    Download as xls, pdf, or txt
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    AMIS 525

    ROI and Residual Income

    Definitions: assets interest rate target income income ROI RI A ir TI = A * ir I I/A I - [ A * ir ] = I - TI

    Example: existing business A ir TI = A * ir I I/A I - [ A * ir ] = I - TI $1,800 12.00% $216 $360 20.00% $144 new business A ir TI = A * ir I I/A I - [ A * ir ] = I - TI $50 12.00% $6 $8 16.00% $2 combined business A ir TI = A * ir I I/A I - [ A * ir ] = I - TI Example: existing business A ir TI = A * ir I I/A I - [ A * ir ] = I - TI $1,200 15.00% $250 new business $60 15.00% $8 combined business $1,850 12.00% $222 $368 19.89% $146

    Example: existing business A ir TI = A * ir I I/A I - [ A * ir ] = I - TI $1,200 15.00% $180 $250 20.83% $70 new business $60 15.00% $9 $8 13.33% ($1) combined business $1,260 15.00% $189 $258 20.48% $69

    incremental decision incentives decision of ROI evaluated manager new ROI < old ROI new ROI > old ROI decision of RI evaluated manager new RI < 0 new RI > 0
    1/9/2014

    reject accept

    reject accept
    9:30 AM 202046140.xls.ms_office

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