If the purpose of an entity is to maximise the wealth of its owners, then the performance measure that will ensure managers make decisions in the best interest of the owners is:

a.

return on investment.

b.

profit margin.

c.

residual income.

d.

economic value added.

If Residual income (RI) = Profit before tax minus (Required rate of return x Investment),

and profit after tax is $600,000, tax is $280,000, and the required rate of return is 15%, and the investment is $2,000,000, what is the residual income?

a 15%

b 44%

c $300,000

d 580,000