In Chapter 14, we discussed performance measurement in investment centers, where the managers have decision authority over

Question:

In Chapter 14, we discussed performance measurement in investment centers, where the managers have decision authority over asset usage (for example, adding new plants). The financial performance measures discussed in Chapter 14 (ROI, residual income, and EVA) were based on accounting income, which measures plant cost by depreciation. Why is it possible that a project to build a new plant can have a negative residual income in the first year, but have a positive net present value?

Net Present Value
What is NPV? The net present value is an important tool for capital budgeting decision to assess that an investment in a project is worthwhile or not? The net present value of a project is calculated before taking up the investment decision at...