Answered

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The Central division of NLH, Inc. is considering an investment that has the following projected information: Revenues = $100,000 All expenses = $85,000 Investment value = $250,000 Upper management of NLH, Inc. has established the cost of capital at 10%. If the manager is compensated based on residual income, will she make the investment?
A. No, because the residual income is -$25,000.
B. Yes, because the residual income percentage exceeds the cost of capital percentage.
C. No, because the residual income from this investment is -$10,000.
D. Yes, because the residual income from this investment is $15,000.

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