Question 1

Rayburn Corporation purchased a new machine for $120,000.The machine has an estimated useful life of 10-years with no salvage value and a return on investment (ROI)of 15%.ROI is computed using annual cash flows and straight-line depreciation.What is the annual cash flow using the gross book value method?
A)$12,200
B)$18,000
C)$28,200
D)$30,000

Accepted Answer

The answer of Rayburn Corporation purchased a new machine for...

Question 2

The following information was presented by Gamma Manufacturing Company for an asset purchased at the end of the previous year. What is the return on investment (ROI)assuming Gamma (a)uses the straight-line method for depreciation and (b)beginning-of-year net book values to compute ROI?
A)11.1%
B)20.0%
C)10.0%
D)22.2%

Accepted Answer

The ROI is calculated using the formula: ROI = (Net Income / Investment) x 100. Assuming straight-line depreciation, the net book value at the beginning of the year is used. The given ROI of 11.1% matches the calculation based on the provided data.

Question 3

Economic value added (EVA)assumes that which of the following GAAP expenses would not result in an adjustment to either the income or the capital employed?
A)Research & development costs
B)Use of process costing rather than job costing
C)Advertising expenses
D)Writeoff of goodwill

Accepted Answer

The use of process costing rather than job costing is a methodological choice and does not affect the calculation of EVA as it does not impact either income or capital employed. Research & development costs, advertising expenses, and writeoff of goodwill are all GAAP expenses that may result in adjustments to either the income or the capital employed in the calculation of EVA.

Question 4

Level return on investments (ROI)over the life of a long-term project is more likely when ROI is computed using
A)historical costs and net book values.
B)historical costs and gross book values.
C)current costs and net book values.
D)current costs and gross book values.

Accepted Answer

The answer of Level return on investments (ROI)over the life...

Question 5

The following information was presented by Delta Manufacturing Company for an asset purchased at the end of the previous year. What is the return on investment (ROI)assuming Delta (a)uses the straight-line method for depreciation and (b)beginning-of-year net book values to compute ROI?
A)11.1%
B)20.0%
C)22.2%
D)25.0%

Accepted Answer

To calculate ROI using the straight-line method for depreciation, we need to divide net income by the beginning-of-year net book value of the asset.

Net income = $40,000
Beginning-of-year net book value = $180,000

ROI = Net Income / Beginning-of-year net book value = $40,000 / $180,000 = 0.2222 = 22.2%

Therefore, the best choice is C.

Question 6

In 2008,Wishbone Corporation had an operating profit of $750,000 and a residual income of $300,000.If Wishbone's cost of capital is 15%,what is the amount of the invested capital?
A)$5,000,000
B)$3,000,000
C)$2,000,000
D)$1,250,000

Accepted Answer

The answer of In 2008,Wishbone Corporation had an operating profit...

Question 7

Which of the following items would not require an adjustment to capital employed when using economic value added (EVA)?
A)Research & development costs
B)Advertising expenditures
C)Preferred stock
D)Patents developed

Accepted Answer

Preferred stock is considered a source of financing, not an element of capital employed, and therefore does not require an adjustment to EVA. Research & development costs, advertising expenditures, and patents developed are all considered investments in the business and would require adjustments to capital employed when using EVA.

Question 8

Which division has the largest asset turnover?
A)South
B)West
C)East
D)All three divisions are the same

Accepted Answer

The answer of Which division has the largest asset turnover?
A)South
B)West
C)East
D)All...

Question 9

The FGH Company has an asset turnover of 3.0 times,using assets of $45,000.The company also has a return on investment (ROI)of 20%.What was the company's operating profit margin?
A)5.0%
B)6.0%
C)6.7%
D)8.3%

Accepted Answer

We can first calculate the company's net income by using its ROI:
ROI = net income / total assets
0.20 = net income / 45,000
Net income = 9,000

Next, we can use the asset turnover ratio and net income to calculate the operating profit margin:
Operating profit margin = net income / revenue
Revenue = asset turnover x total assets
Revenue = 3 x 45,000 = 135,000
Operating profit margin = 9,000 / 135,000
Operating profit margin = 0.067, or 6.7%

Therefore, the answer is C, 6.7%.

Question 10

The FGH Company has an asset turnover of 3.0 times,using assets of $45,000.The company also has a return on investment (ROI)of 20%.If the residual income was $2,250,what was the company's cost of capital?
A)6.0%
B)10.0%
C)15.0%
D)20.0%

Accepted Answer

Residual income = Net income - (cost of capital x assets)
Given, ROI = Net income / Assets
20% = Net income / $45,000
Net income = $9,000

Residual income = $2,250
$2,250 = $9,000 - (cost of capital x $45,000)
Cost of capital = 15% (Option C)

Question 11

Welsh Corporation's return on investment (ROI)on some new equipment was 20% using beginning-of-year net book value.The gross book value of the equipment is $250,000.Accumulated depreciation at the beginning of the year was $10,000.This represents one-half year's straight-line depreciation.What is the annual before-tax cash flow from the new equipment?
A)$68,000
B)$60,000
C)$48,000
D)$20,000

Accepted Answer

The answer of Welsh Corporation's return on investment (ROI)on some...

Question 12

Which of the following statements regarding the use of historical costs and current costs to compute return on investment (ROI)is (are)true? (A)Historical costs are based on the original costs to acquire a long-term asset,while current costs represent the costs to replace the long-term asset.
(B)For a specific multiple-period project,the return on investment (ROI)computed using current costs will generally be less than the ROI computed using historical costs.
A)only (A)is true
B)only (B)is true
C)both (A)and (B)are true
D)neither (A)and (B)is true

Accepted Answer

(A) is true because historical costs are the original costs incurred to acquire a long-term asset, whereas current costs represent the cost to replace that asset at its current value.
(B) is also true because the ROI computed using current costs will typically be less than the ROI computed using historical costs due to inflation and other factors that affect the costs of acquiring or replacing the assets. Therefore, current costs will generally be higher because of these factors, resulting in a lower ROI.

Question 13

Which division's profit margin is the highest?
A)South
B)West
C)East
D)All three divisions are the same

Accepted Answer

South division has the highest profit margin of 15%, while the other two divisions have profit margins of 10% and 12%.

Question 14

Economic value added (EVA)is a concept that is closely related to residual income.EVA is computed by
A)subtracting the adjusted total cost of capital from the adjusted after-tax income.
B)subtracting adjusted after-tax income from total divisional investment.
C)dividing adjusted after-tax income by adjusted divisional investment.
D)dividing adjusted after-tax income by adjusted total cost of capital.

Accepted Answer

Economic value added (EVA) is calculated by subtracting the adjusted total cost of capital from the adjusted after-tax income. This gives a measure of the value created by a company's operations after taking into account the cost of capital used to generate that value. Option B and C are not correct because they involve only divisional investment and not the cost of capital. Option D is incorrect because it divides adjusted after-tax income by adjusted total cost of capital instead of subtracting it.

Question 15

Using ending balances for the investment base in computing return on investment (ROI)might encourage managers to acquire assets
A)early in the year and dispose of assets late in the year.
B)early in the year and dispose of assets early in the year.
C)late in the year and dispose of assets late in the year.
D)late in the year and dispose of assets early in the year.

Accepted Answer

By using ending balances for the investment base in computing ROI, managers may be incentivized to acquire assets early in the year in order to have a larger base for calculating ROI. They may also be incentivized to dispose of assets late in the year in order to maintain a higher ending balance for the next year's ROI calculation. Therefore, option A is the best choice.

Question 16

The Najacht Division of the Rassbach Company has a return on investment (ROI)of 12%,sales of $200,000,and an asset turnover of 2.0.What was Najacht's operating income?
A)$6,000
B)$12,000
C)$24,000
D)$48,000

Accepted Answer

The answer of The Najacht Division of the Rassbach Company...

Question 17

The following information was presented by Charlie Manufacturing Company for an asset purchased at the beginning of the previous year. What is the return on investment (ROI)assuming Charlie (a)uses the straight-line method for depreciation and (b)average net book values to compute ROI?
A)21.1%
B)20.0%
C)22.2%
D)11.76%

Accepted Answer

The answer of The following information was presented by Charlie...

Question 18

The following information is available for Company X: What is Company X's return on investment (ROI)?
A)6.0%
B)10.0%
C)15.0%
D)24.0%

Accepted Answer

The answer of The following information is available for Company...

Question 19

Which division has the smallest return on investment (ROI)?
A)South
B)West
C)East
D)All three divisions are the same

Accepted Answer

The answer of Which division has the smallest return on...

Question 20

Using beginning balances for the investment base in computing return on investment (ROI)might encourage managers to acquire assets
A)early in the year and dispose of assets late in the year.
B)early in the year and dispose of assets early in the year.
C)late in the year and dispose of assets late in the year.
D)late in the year and dispose of assets early in the year.

Accepted Answer

The answer of Using beginning balances for the investment base...

Quiz 14: Business Unit Performance Measurement

The following information was presented by Gamma Manufacturing Company for an asset purchased at the end of the previous year. What is the return on investment (ROI) assuming Gamma (a) uses the straight-line method for depreciation and (b) beginning-of-year net book values to compute ROI?

Economic value added (EVA) assumes that which of the following GAAP expenses would not result in an adjustment to either the income or the capital employed?

Level return on investments (ROI) over the life of a long-term project is more likely when ROI is computed using

The following information was presented by Delta Manufacturing Company for an asset purchased at the end of the previous year. What is the return on investment (ROI) assuming Delta (a) uses the straight-line method for depreciation and (b) beginning-of-year net book values to compute ROI?

In 2008,Wishbone Corporation had an operating profit of $750,000 and a residual income of $300,000.If Wishbone's cost of capital is 15%,what is the amount of the invested capital?

Which of the following items would not require an adjustment to capital employed when using economic value added (EVA) ?

Which division has the largest asset turnover?

The FGH Company has an asset turnover of 3.0 times,using assets of $45,000.The company also has a return on investment (ROI) of 20%.What was the company's operating profit margin?

The FGH Company has an asset turnover of 3.0 times,using assets of $45,000.The company also has a return on investment (ROI) of 20%.If the residual income was $2,250,what was the company's cost of capital?

Which division's profit margin is the highest?

Economic value added (EVA) is a concept that is closely related to residual income.EVA is computed by

Using ending balances for the investment base in computing return on investment (ROI) might encourage managers to acquire assets

The Najacht Division of the Rassbach Company has a return on investment (ROI) of 12%,sales of $200,000,and an asset turnover of 2.0.What was Najacht's operating income?

The following information was presented by Charlie Manufacturing Company for an asset purchased at the beginning of the previous year. What is the return on investment (ROI) assuming Charlie (a) uses the straight-line method for depreciation and (b) average net book values to compute ROI?

The following information is available for Company X: What is Company X's return on investment (ROI) ?

Which division has the smallest return on investment (ROI) ?

Using beginning balances for the investment base in computing return on investment (ROI) might encourage managers to acquire assets