Fundamentals of Cost Accounting
Fundamentals of Cost Accounting
5th Edition
ISBN: 9781259565403
Author: William N. Lanen Professor, Shannon Anderson Associate Professor, Michael W Maher
Publisher: McGraw-Hill Education
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Chapter A, Problem 11CADQ

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?

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