(b) Explain how the adoption of residual income (RI) using the annuity method of

(b) Explain how the adoption of residual income (RI) using the annuity method of depreciation might prove to

be a superior basis for the management incentive plan operated by NCL plc.

(N.B. No illustrative calculations should be incorporated into your explanation). (4 marks)

(b) The use of residual income as a basis for the management incentive plan operated by NCL plc would have the followingadvantages:Divisional management would be more willing to accept a project with a positive residual income and this would contributeto