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1、ConfirmingPagesCHAPTERNINETEENStrategicPerformanceMeasurement:InvestmentCentersAfterstudyingthischapter,youshouldbeableto...1.Explaintheuseandlimitationsofreturnoninvestment(ROI)forevaluatinginvestmentcenters2.Explaintheuseandlimitationsofresidualincome(RI)forevaluati
2、nginvestmentcenters3.Explaintheuseandlimitationsofeconomicvalueadded(EVA®)forevaluatinginvestmentcenters4.Explaintheobjectivesoftransferpricingandtheadvantagesanddisadvantagesofvarioustransfer-pricingalternatives5.Discussimportantinternationalissuesthatariseintransfer
3、pricingAsindicatedintheprecedingchapter,whenanorganizationdecentralizesitdoessotoachievecertainobjectives,includingmaximizationofshareholdervalue.Fromtopmanagement’sviewpoint,oneofthecostsofdecentralizationistheneedtoimplementaneffectiveperform-ance-measurementsystem.
4、Thetraditionalapproachtothedesignofsuchasystemistofocusonthetenetofcontrollability:subunitsofadecentralizedorganization(andtheirmanagers)should,asmuchaspossible,beevaluatedonlyonfactorstheycancontrol,oratleastinflu-ence,bytheiractions.Inpreviouschapters,we’velookedath
5、owtopmanagementcanevaluatethefinancialperformanceoflower-levelunitsoftheorganization(viz.,costcentersandprofitcenters).Thischaptercoversissuesrelatedtotheperformanceofinvestmentcenters—thehighestsubunitlevelofanorganization.Bydefinition,managersoftheseunitsexercisecon
6、-troloverrevenues,costs,andlevelofinvestment.Thus,theevaluationoffinancialperform-anceoftheseunitsshouldlogicallyincorporateameasureofinvestedcapital.Suchmeasuresallowtopmanagementtocomparethefinancialperformanceofdifferentinvestmentcenterswithintheorganization.Asindi
7、catedinthevignettethatfollows,thetaskofevaluatingtheperformanceofinvestmentunitsiscomplicatedwhentheseunitsexchangegoodsandserviceswithoneanother.Thatis,insuchsituationsa“transferprice”betweenunitsmustbechosentoevaluatethefinancialperformanceofboththebuyingunitandthes
8、ellingunit.Settinganappropriatetransferpriceisespeciallychallenginginaninternationalcontext.FiveStepsintheEvaluationoftheFin
