What are some of the limitations of using ROI, residual income, and EVA to measure the performance of investment centers?
All three measure focus on short-term financial performance. In addition:
ROI: A company's overemphasis on ROI may cause managers to react with business decisions that favor their particular area of responsibility's ROI performance at the expense of companywide profits or the long-term success of other investment centers.
Residual Income: For residual income figures to be comparable, all investment centers must have equal access to resources and similar asset investment bases.
EVA: Many factors affect EVA. Therefore, EVA evaluation will be more meaningful if the current EVA is compared to EVAs from previous periods, target EVAs, and EVAs from other investment centers.
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A public policy reason for imposing strict product liability on all in the chain of distribution is:
A) Consumers should be able to choose dangerous products if they want to. B) These parties are able to insure against product liability costs. C) These parties should be punished for putting dangerous products on the market. D) Negligence was making it too easy for plaintiffs to recover.