Deck 23: Performance Measurement, compensation, and Multinational Considerations

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Question
Managers usually use the return on investment to evaluate ________.

A) the performance of a subdivision
B) the accounting principles followed
C) the size of the investment
D) the balance of working capital
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Question
Assume you are evaluating a manufacturing company.Match the various organizational activities and concepts with the performance measures listed.Some items may have more than one match.
Activities:
Assume you are evaluating a manufacturing company.Match the various organizational activities and concepts with the performance measures listed.Some items may have more than one match. Activities:   Performance measure:  <div style=padding-top: 35px> Performance measure:
Assume you are evaluating a manufacturing company.Match the various organizational activities and concepts with the performance measures listed.Some items may have more than one match. Activities:   Performance measure:  <div style=padding-top: 35px>
Question
An example of a performance measure with a long time horizon is ________.

A) direct materials efficiency variances
B) overhead spending variances
C) number of new patents developed
D) quality of room service
Question
The return on investment is usually considered the most popular approach to measure performance because ________.

A) it blends all the ingredients of profitability into a single percentage
B) once determined, there is no need to use it with other measures of performance
C) it throws light on the company's working capital
D) it measures the cash balance of the company in the most efficient manner
Question
A report that measures financial and nonfinancial performance measures for various organization units in a single report is called a(n)________.

A) balanced scorecard
B) financial report scorecard
C) goal-congruence report
D) investment success report
Question
Customer-satisfaction measures are an example of the ________.

A) goal-congruence approach
B) balanced scorecard approach
C) financial report scorecard approach
D) investment success approach
Question
The balanced scorecard in most organizations is broken down into the following categories: commercial perspective,supplier perspective,external business-process perspective,and productivity perspective.
Question
Which of the following steps in designing an accounting-based performance measure includes decisions of selecting net income as a measure of financial performance?

A) choosing performance measures that align with the firm's financial goals
B) choosing the time horizon of each performance measure
C) choosing the details for each performance measure
D) choosing a target level of performance
Question
Companies are increasingly using nonfinancial measures to evaluate performance.Why? Since these numbers do not come from the company's financial records,why are they used?
Question
Many common performance measures,such as customer satisfaction,rely on internal financial accounting information.
Question
Some companies present financial and nonfinancial performance measures for various organization units in a single report called the balanced scorecard.
Question
Which of the following is true about designing an accounting-based performance measure?

A) The decisions made in steps are followed in a hierarchial order.
B) The issues considered in each step are independent.
C) Management's beliefs are not required during the analyses.
D) Behavioral criteria are important when evaluating the steps.
Question
When designing the steps in accounting-based performance measures,should the decisions in these steps be sequential?
Question
The ________ method of profitability analysis recognizes the two basic ingredients in profit-making: increasing income per dollar of revenues and using assets to generate more revenues.

A) Balanced Scorecard
B) Residual-Income
C) DuPont
D) Economic Value Added
Question
Return on investment can be increased by ________.

A) increasing current assets
B) decreasing total assets
C) decreasing revenues
D) increasing the debt portion of the capital
Question
Average number of repeat visits in a spa unit is a ________ measure on a balanced scorecard.

A) customer perspective
B) financial perspective
C) learning-and-growth perspective
D) internal-business-process perspective
Question
Make a list of steps of designing an accounting based performance measure.Give example of decisions taken under each step.
Question
Aaron Corp's net income is $25,000.What is the amount of the investment if the return on investment is 20%?

A) $50,000
B) $100,000
C) $125,000
D) $250,000
Question
Which of the following steps in designing an accounting-based performance measure includes decisions such as defining assets as total assets or net assets in the calculation of return on assets?

A) choosing performance measures that align with top management's financial goals
B) choosing the time horizon of each performance measure
C) choosing the details for each performance measure
D) choosing a target level of performance
Question
The first step in designing accounting based performance measures is to choose a target level of performance and feedback mechanism.
Question
Answer the following questions using the information below:
The Cybertronics Corporation reported the following information for its Cyclotron Division:
 Revenues $2,000,000 Operating costs 1,200,000 Operating assets 1,000,000\begin{array} { l r } \text { Revenues } & \$ 2,000,000 \\\text { Operating costs } & 1,200,000 \\\text { Operating assets } & 1,000,000\end{array} Income is defined as operating income.

-What is the Cyclotron Division's return on sales?

A) 20%
B) 40%
C) 50%
D) 60%
Question
Aeralia Inc.,has two regional offices.The data for each are as follows:  Maryland  New Jersey  Revenues $290,000$298,000 Operating assets 2,500,0004,500,000 Net operating income 1,000,0001,200,000\begin{array} { l r r } & \text { Maryland } & \text { New Jersey } \\\text { Revenues } & \$ 290,000 & \$ 298,000 \\\text { Operating assets } & 2,500,000 & 4,500,000 \\\text { Net operating income } & 1,000,000 & 1,200,000\end{array} What is the Maryland Division's return on investment?

A) 40%
B) 54%
C) 12%
D) 3.57%
Question
Zenith Corporation's net income is $78,400.What is the return on investment if the amount of the investment is $500,000?

A) 14.88%
B) 12.78%
C) 15.68%
D) 16%
Question
Answer the following questions using the information below:
The top management at Groundsource Company, a manufacturer of lawn and garden equipment, is attempting to recover from a fire that destroyed some of their accounting records. The main computer system was also severely damaged. The following information was salvaged:
 Tractor Division  Tiller Division Digger Division  Sales $10,000,000(a)$2,400,000 Net operating income $1,000,000$1,440,000$600,000 Operating assets (b)(c)$2,000,000 Return on investment 0.200.10 (d)  Return on sales (e)0.120.25 Investment turnover  (f)  (g) 1.2\begin{array}{lrrr}&\text { Tractor Division }& \text { Tiller Division }& \text {Digger Division }\\\text { Sales } & \$ 10,000,000 & (\mathrm{a}) & \$ 2,400,000 \\\text { Net operating income } & \$ 1,000,000 & \$ 1,440,000 & \$ 600,000 \\\text { Operating assets } & (\mathrm{b}) & (\mathrm{c}) & \$ 2,000,000 \\\text { Return on investment } & 0.20 & 0.10 & \text { (d) } \\\text { Return on sales } & (\mathrm{e}) & 0.12 & 0.25 \\\text { Investment turnover } & \text { (f) } & \text { (g) } & 1.2\end{array}

-What is the Digger Division's return on investment?

A) .25
B) .30
C) .45
D) .60
Question
Answer the following questions using the information below:
The top management at Amore Corp, a manufacturer of computer games, is attempting to recover from a flood that destroyed some of their accounting records. The main computer system was also severely damaged. The following information was salvaged:
 Alpha Division  Beta Division  Gamma Division  Sales $5,500,000(a)$2,500,000 Net operating income $3,500,000$1,100,000$1,200,000 Operating assets (b)(c)$1,600,000 Return on investment 0.250.15 (d)  Return on sales (e)0.100.5 Investment turnover (f) (g) 1.5\begin{array}{lrrr}&\text { Alpha Division }&\text { Beta Division }&\text { Gamma Division }\\\text { Sales } & \$ 5,500,000 & (\mathrm{a}) & \$ 2,500,000 \\\text { Net operating income } & \$ 3,500,000 & \$ 1,100,000 & \$ 1,200,000 \\\text { Operating assets } & (\mathrm{b}) & (\mathrm{c}) & \$ 1,600,000 \\\text { Return on investment } & 0.25 & 0.15 & \text { (d) } \\\text { Return on sales } & (\mathrm{e}) & 0.10 & 0.5 \\\text { Investment turnover } & (\mathrm{f}) & \text { (g) } & 1.5\end{array}

-What is the Gamma Division's return on investment (d)?

A) 0.25
B) 0.45
C) 0.60
D) 0.75
Question
Answer the following questions using the information below:
The top management at Amore Corp, a manufacturer of computer games, is attempting to recover from a flood that destroyed some of their accounting records. The main computer system was also severely damaged. The following information was salvaged:
 Alpha Division  Beta Division  Gamma Division  Sales $5,500,000(a)$2,500,000 Net operating income $3,500,000$1,100,000$1,200,000 Operating assets (b)(c)$1,600,000 Return on investment 0.250.15 (d)  Return on sales (e)0.100.5 Investment turnover (f) (g) 1.5\begin{array}{lrrr}&\text { Alpha Division }&\text { Beta Division }&\text { Gamma Division }\\\text { Sales } & \$ 5,500,000 & (\mathrm{a}) & \$ 2,500,000 \\\text { Net operating income } & \$ 3,500,000 & \$ 1,100,000 & \$ 1,200,000 \\\text { Operating assets } & (\mathrm{b}) & (\mathrm{c}) & \$ 1,600,000 \\\text { Return on investment } & 0.25 & 0.15 & \text { (d) } \\\text { Return on sales } & (\mathrm{e}) & 0.10 & 0.5 \\\text { Investment turnover } & (\mathrm{f}) & \text { (g) } & 1.5\end{array}

-What were the sales for the Beta Division (a)?

A) $8,666,667
B) $11,904,760
C) $11,000,000
D) $14,303,600
Question
Answer the following questions using the information below:
The top management at Amore Corp, a manufacturer of computer games, is attempting to recover from a flood that destroyed some of their accounting records. The main computer system was also severely damaged. The following information was salvaged:
 Alpha Division  Beta Division  Gamma Division  Sales $5,500,000(a)$2,500,000 Net operating income $3,500,000$1,100,000$1,200,000 Operating assets (b)(c)$1,600,000 Return on investment 0.250.15 (d)  Return on sales (e)0.100.5 Investment turnover (f) (g) 1.5\begin{array}{lrrr}&\text { Alpha Division }&\text { Beta Division }&\text { Gamma Division }\\\text { Sales } & \$ 5,500,000 & (\mathrm{a}) & \$ 2,500,000 \\\text { Net operating income } & \$ 3,500,000 & \$ 1,100,000 & \$ 1,200,000 \\\text { Operating assets } & (\mathrm{b}) & (\mathrm{c}) & \$ 1,600,000 \\\text { Return on investment } & 0.25 & 0.15 & \text { (d) } \\\text { Return on sales } & (\mathrm{e}) & 0.10 & 0.5 \\\text { Investment turnover } & (\mathrm{f}) & \text { (g) } & 1.5\end{array}

-What is the value of the operating assets belonging to the Beta Division (c)?

A) $7,333,333
B) $11,904,760
C) $8,333,333
D) $14,303,600
Question
Bouvous Corporation had the following information for 2015:  Revenue $400,000 Operating expenses 350,000 Total assets 500,000\begin{array}{lr}\text { Revenue } & \$ 400,000 \\\text { Operating expenses } & 350,000 \\\text { Total assets } & 500,000\end{array} What is the return on investment?

A) 10%
B) 20%
C) 25%
D) 18.2%
Question
Answer the following questions using the information below:
The top management at Groundsource Company, a manufacturer of lawn and garden equipment, is attempting to recover from a fire that destroyed some of their accounting records. The main computer system was also severely damaged. The following information was salvaged:
 Tractor Division  Tiller Division Digger Division  Sales $10,000,000(a)$2,400,000 Net operating income $1,000,000$1,440,000$600,000 Operating assets (b)(c)$2,000,000 Return on investment 0.200.10 (d)  Return on sales (e)0.120.25 Investment turnover  (f)  (g) 1.2\begin{array}{lrrr}&\text { Tractor Division }& \text { Tiller Division }& \text {Digger Division }\\\text { Sales } & \$ 10,000,000 & (\mathrm{a}) & \$ 2,400,000 \\\text { Net operating income } & \$ 1,000,000 & \$ 1,440,000 & \$ 600,000 \\\text { Operating assets } & (\mathrm{b}) & (\mathrm{c}) & \$ 2,000,000 \\\text { Return on investment } & 0.20 & 0.10 & \text { (d) } \\\text { Return on sales } & (\mathrm{e}) & 0.12 & 0.25 \\\text { Investment turnover } & \text { (f) } & \text { (g) } & 1.2\end{array}

-What is the Tractor Division's investment turnover?

A).50
B) 1.0
C) 2.0
D) 2.5
Question
Answer the following questions using the information below:
The Cybertronics Corporation reported the following information for its Cyclotron Division:
 Revenues $2,000,000 Operating costs 1,200,000 Operating assets 1,000,000\begin{array} { l r } \text { Revenues } & \$ 2,000,000 \\\text { Operating costs } & 1,200,000 \\\text { Operating assets } & 1,000,000\end{array} Income is defined as operating income.

-What is the Cyclotron Division's return on investment?

A) 35%
B) 75%
C) 50%
D) 80%
Question
Answer the following questions using the information below:
The top management at Amore Corp, a manufacturer of computer games, is attempting to recover from a flood that destroyed some of their accounting records. The main computer system was also severely damaged. The following information was salvaged:
 Alpha Division  Beta Division  Gamma Division  Sales $5,500,000(a)$2,500,000 Net operating income $3,500,000$1,100,000$1,200,000 Operating assets (b)(c)$1,600,000 Return on investment 0.250.15 (d)  Return on sales (e)0.100.5 Investment turnover (f) (g) 1.5\begin{array}{lrrr}&\text { Alpha Division }&\text { Beta Division }&\text { Gamma Division }\\\text { Sales } & \$ 5,500,000 & (\mathrm{a}) & \$ 2,500,000 \\\text { Net operating income } & \$ 3,500,000 & \$ 1,100,000 & \$ 1,200,000 \\\text { Operating assets } & (\mathrm{b}) & (\mathrm{c}) & \$ 1,600,000 \\\text { Return on investment } & 0.25 & 0.15 & \text { (d) } \\\text { Return on sales } & (\mathrm{e}) & 0.10 & 0.5 \\\text { Investment turnover } & (\mathrm{f}) & \text { (g) } & 1.5\end{array}

-What is the Alpha Division's return on sales (e)?

A) 60%
B) 65%
C) 63.64%
D) 53.63%
Question
Answer the following questions using the information below:
The top management at Groundsource Company, a manufacturer of lawn and garden equipment, is attempting to recover from a fire that destroyed some of their accounting records. The main computer system was also severely damaged. The following information was salvaged:
 Tractor Division  Tiller Division Digger Division  Sales $10,000,000(a)$2,400,000 Net operating income $1,000,000$1,440,000$600,000 Operating assets (b)(c)$2,000,000 Return on investment 0.200.10 (d)  Return on sales (e)0.120.25 Investment turnover  (f)  (g) 1.2\begin{array}{lrrr}&\text { Tractor Division }& \text { Tiller Division }& \text {Digger Division }\\\text { Sales } & \$ 10,000,000 & (\mathrm{a}) & \$ 2,400,000 \\\text { Net operating income } & \$ 1,000,000 & \$ 1,440,000 & \$ 600,000 \\\text { Operating assets } & (\mathrm{b}) & (\mathrm{c}) & \$ 2,000,000 \\\text { Return on investment } & 0.20 & 0.10 & \text { (d) } \\\text { Return on sales } & (\mathrm{e}) & 0.12 & 0.25 \\\text { Investment turnover } & \text { (f) } & \text { (g) } & 1.2\end{array}

-What is the value of the operating assets belonging to the Tiller Division?

A) $ 10,000,000
B) $ 12,000,000
C) $ 14,400,000
D) $ 15,000,000
Question
Answer the following questions using the information below:
The Cybertronics Corporation reported the following information for its Cyclotron Division:
 Revenues $2,000,000 Operating costs 1,200,000 Operating assets 1,000,000\begin{array} { l r } \text { Revenues } & \$ 2,000,000 \\\text { Operating costs } & 1,200,000 \\\text { Operating assets } & 1,000,000\end{array} Income is defined as operating income.

-What is the Cyclotron Division's investment turnover ratio?

A) 2.00
B) 3.33
C) 2.50
D) 0.80
Question
The weighted-average cost of capital (WACC)equals ________.

A) the after-tax average cost of all the long-term and short-term funds
B) the after-tax average cost of all the long-term funds
C) the pre-tax average cost of all the short-term funds
D) the pre-tax average cost of all the long-term and short-term funds
Question
Answer the following questions using the information below:
The top management at Groundsource Company, a manufacturer of lawn and garden equipment, is attempting to recover from a fire that destroyed some of their accounting records. The main computer system was also severely damaged. The following information was salvaged:
 Tractor Division  Tiller Division Digger Division  Sales $10,000,000(a)$2,400,000 Net operating income $1,000,000$1,440,000$600,000 Operating assets (b)(c)$2,000,000 Return on investment 0.200.10 (d)  Return on sales (e)0.120.25 Investment turnover  (f)  (g) 1.2\begin{array}{lrrr}&\text { Tractor Division }& \text { Tiller Division }& \text {Digger Division }\\\text { Sales } & \$ 10,000,000 & (\mathrm{a}) & \$ 2,400,000 \\\text { Net operating income } & \$ 1,000,000 & \$ 1,440,000 & \$ 600,000 \\\text { Operating assets } & (\mathrm{b}) & (\mathrm{c}) & \$ 2,000,000 \\\text { Return on investment } & 0.20 & 0.10 & \text { (d) } \\\text { Return on sales } & (\mathrm{e}) & 0.12 & 0.25 \\\text { Investment turnover } & \text { (f) } & \text { (g) } & 1.2\end{array}

-What is the Tractor Division's return on sales?

A) 0.10
B) 0.12
C) 0.15
D) 0.20
Question
Answer the following questions using the information below:
The top management at Groundsource Company, a manufacturer of lawn and garden equipment, is attempting to recover from a fire that destroyed some of their accounting records. The main computer system was also severely damaged. The following information was salvaged:
 Tractor Division  Tiller Division Digger Division  Sales $10,000,000(a)$2,400,000 Net operating income $1,000,000$1,440,000$600,000 Operating assets (b)(c)$2,000,000 Return on investment 0.200.10 (d)  Return on sales (e)0.120.25 Investment turnover  (f)  (g) 1.2\begin{array}{lrrr}&\text { Tractor Division }& \text { Tiller Division }& \text {Digger Division }\\\text { Sales } & \$ 10,000,000 & (\mathrm{a}) & \$ 2,400,000 \\\text { Net operating income } & \$ 1,000,000 & \$ 1,440,000 & \$ 600,000 \\\text { Operating assets } & (\mathrm{b}) & (\mathrm{c}) & \$ 2,000,000 \\\text { Return on investment } & 0.20 & 0.10 & \text { (d) } \\\text { Return on sales } & (\mathrm{e}) & 0.12 & 0.25 \\\text { Investment turnover } & \text { (f) } & \text { (g) } & 1.2\end{array}

-What were the sales for the Tiller Division?

A) $9,600,000
B) $12,000,000
C) $15,000,000
D) $15,500,000
Question
Answer the following questions using the information below:
The top management at Groundsource Company, a manufacturer of lawn and garden equipment, is attempting to recover from a fire that destroyed some of their accounting records. The main computer system was also severely damaged. The following information was salvaged:
 Tractor Division  Tiller Division Digger Division  Sales $10,000,000(a)$2,400,000 Net operating income $1,000,000$1,440,000$600,000 Operating assets (b)(c)$2,000,000 Return on investment 0.200.10 (d)  Return on sales (e)0.120.25 Investment turnover  (f)  (g) 1.2\begin{array}{lrrr}&\text { Tractor Division }& \text { Tiller Division }& \text {Digger Division }\\\text { Sales } & \$ 10,000,000 & (\mathrm{a}) & \$ 2,400,000 \\\text { Net operating income } & \$ 1,000,000 & \$ 1,440,000 & \$ 600,000 \\\text { Operating assets } & (\mathrm{b}) & (\mathrm{c}) & \$ 2,000,000 \\\text { Return on investment } & 0.20 & 0.10 & \text { (d) } \\\text { Return on sales } & (\mathrm{e}) & 0.12 & 0.25 \\\text { Investment turnover } & \text { (f) } & \text { (g) } & 1.2\end{array}

-What is the value of the operating assets belonging to the Tractor Division?

A) $ 3,500,000
B) $4,000,000
C) $4,500,000
D) $5,000,000
Question
Answer the following questions using the information below:
The top management at Amore Corp, a manufacturer of computer games, is attempting to recover from a flood that destroyed some of their accounting records. The main computer system was also severely damaged. The following information was salvaged:
 Alpha Division  Beta Division  Gamma Division  Sales $5,500,000(a)$2,500,000 Net operating income $3,500,000$1,100,000$1,200,000 Operating assets (b)(c)$1,600,000 Return on investment 0.250.15 (d)  Return on sales (e)0.100.5 Investment turnover (f) (g) 1.5\begin{array}{lrrr}&\text { Alpha Division }&\text { Beta Division }&\text { Gamma Division }\\\text { Sales } & \$ 5,500,000 & (\mathrm{a}) & \$ 2,500,000 \\\text { Net operating income } & \$ 3,500,000 & \$ 1,100,000 & \$ 1,200,000 \\\text { Operating assets } & (\mathrm{b}) & (\mathrm{c}) & \$ 1,600,000 \\\text { Return on investment } & 0.25 & 0.15 & \text { (d) } \\\text { Return on sales } & (\mathrm{e}) & 0.10 & 0.5 \\\text { Investment turnover } & (\mathrm{f}) & \text { (g) } & 1.5\end{array}

-What is the value of the operating assets belonging to the Alpha Division (b)?

A) $8,666,667
B) $14,000,000
C) $13,000,000
D) $14,303,600
Question
Answer the following questions using the information below:
The top management at Groundsource Company, a manufacturer of lawn and garden equipment, is attempting to recover from a fire that destroyed some of their accounting records. The main computer system was also severely damaged. The following information was salvaged:
 Tractor Division  Tiller Division Digger Division  Sales $10,000,000(a)$2,400,000 Net operating income $1,000,000$1,440,000$600,000 Operating assets (b)(c)$2,000,000 Return on investment 0.200.10 (d)  Return on sales (e)0.120.25 Investment turnover  (f)  (g) 1.2\begin{array}{lrrr}&\text { Tractor Division }& \text { Tiller Division }& \text {Digger Division }\\\text { Sales } & \$ 10,000,000 & (\mathrm{a}) & \$ 2,400,000 \\\text { Net operating income } & \$ 1,000,000 & \$ 1,440,000 & \$ 600,000 \\\text { Operating assets } & (\mathrm{b}) & (\mathrm{c}) & \$ 2,000,000 \\\text { Return on investment } & 0.20 & 0.10 & \text { (d) } \\\text { Return on sales } & (\mathrm{e}) & 0.12 & 0.25 \\\text { Investment turnover } & \text { (f) } & \text { (g) } & 1.2\end{array}

-What is the Tiller Division's investment turnover?

A) .50
B) .833
C) 1.2
D) 1.5
Question
Bouvous Corp has two regional offices.The data for each are as follows:  Maryland  New Jersey  Revenues $290,000$300,000 Operating assets 2,400,0004,500,000 Net operating income 1,008,0001,500,000\begin{array} { l r r } & \text { Maryland } & \text { New Jersey } \\\text { Revenues } & \$ 290,000 & \$ 300,000 \\\text { Operating assets } & 2,400,000 & 4,500,000 \\\text { Net operating income } & 1,008,000 & 1,500,000\end{array} What is the return on investment for the New Jersey Division?

A) 21%
B) 33.33%
C) 66.67%
D) 25%
Question
Answer the following questions using the information below:
Care Inc., has two divisions that operate independently of one another. The financial data for the year 2015 reported the following results:
 North  South  Sales $6,000,000$5,000,000 Operating income 1,500,0001,200,000 Taxable income 1,200,000700,000 Investment 14,000,00010,000,000\begin{array} { l r r } & \text { North } & \text { South } \\\text { Sales } & \$ 6,000,000 & \$ 5,000,000 \\\text { Operating income } & 1,500,000 & 1,200,000 \\\text { Taxable income } & 1,200,000 & 700,000 \\\text { Investment } & 14,000,000 & 10,000,000\end{array} The company's desired rate of return is 10%. Income is defined as operating income.

-What are the respective residual incomes for the North and South Divisions?

A) $60,000 and $100,000
B) $300,000 and $60,000
C) $300,000 and $100,000
D) $100,000 and $200,000
Question
Times Corporation,whose tax rate is 40%,has two sources of funds: long-term debt with a market value of $6,000,000 and an interest rate of 9%,and equity capital with a market value of $18,000,000 and a cost of equity of 11%.Times Corporation's after-tax cost of debt is ________.

A) 3.40%
B) 5.40%
C) 5.00%
D) 7.40%
Question
Economic value added is equal to ________.

A) After-tax operating income - [Weighted-average cost of capital + (Total assets - Current liabilities)]
B) Pre-tax operating income - [Weighted-average cost of capital + (Total assets - Current liabilities)]
C) After-tax operating income - [Weighted-average cost of capital × (Total assets - Current liabilities)]
D) Pre-tax operating income - [Weighted-average cost of capital × (Total assets - Current liabilities)]
Question
Answer the following questions using the information below:
Coldbrook Company has two sources of funds: long-term debt with a market and book value of $15 million issued at an interest rate of 10%, and equity capital that has a market value of $9 million (book value of $5 million). Coldbrook Company has profit centers in the following locations with the following operating incomes, total assets, and current liabilities. The cost of equity capital is 15%, while the tax rate is 30%.
 Operating Income  Assets  Current Liabilities  Bish Bash Falls $815,000$3,750,000$800,000 Brooksville $1,100,000$5,000,000$1,200,000 Stonybrook $2,450,000$9,250,000$3,180,000\begin{array} { | l | r | r | r | } \hline & \text { Operating Income } & \text { Assets } & \text { Current Liabilities } \\\hline \text { Bish Bash Falls } & \$ 815,000 & \$ 3,750,000 & \$ 800,000 \\\hline \text { Brooksville } & \$ 1,100,000 & \$ 5,000,000 & \$ 1,200,000 \\\hline \text { Stonybrook } & \$ 2,450,000 & \$ 9,250,000 & \$ 3,180,000 \\\hline\end{array}

-What is the EVA for Bish Bash Falls?

A) $338,563
B) $305,000
C) $275,500
D) $255,500
Question
Stonex Corp,whose tax rate is 40%,has two sources of funds: long-term debt with a market value of $6,000,000 and an interest rate of 8%,and equity capital with a market value of $14,000,000 and a cost of equity of 12%.Stonex has two operating divisions,the Blue division and the Gold division,with the following financial measures for the current year:  Total Assets  Current Liabilities  Operating Income  Blue Div. $9,500,000$2,500,000$1,155,000 Gold Div. $10,000,000$2,400,000$1,200,000\begin{array} { | l | l | l | l | } \hline & \text { Total Assets } & \text { Current Liabilities } & \text { Operating Income } \\\hline \text { Blue Div. } & \$ 9,500,000 & \$ 2,500,000 & \$ 1,155,000 \\\hline \text { Gold Div. } & \$ 10,000,000 & \$ 2,400,000 & \$ 1,200,000 \\\hline\end{array} Calculate EVA for the Gold Division.

A) ($57,640)
B) ($27,840)
C) ($37,340)
D) $397,440
Question
Return on investment is also known as the ________.

A) net present value
B) accounting rate of return
C) residual income
D) economic value added
Question
The after-tax average cost of all the long-term funds used by a corporation equals ________.

A) economic value added
B) cost of goodwill
C) interest cost of the capital
D) weighted-average cost of capital
Question
Using residual income as a measure of performance rather than return on investment promotes goal congruence because residual income ________.

A) places importance on the reduction of underperforming assets
B) calculates a percentage return rather than an absolute return
C) concentrates on maximizing an absolute amount of dollars
D) concentrates on maximizing the return on sales
Question
Springfield Corporation,whose tax rate is 30%,has two sources of funds: long-term debt with a market value of $6,000,000 and an interest rate of 8%,and equity capital with a market value of $15,000,000 and a cost of equity of 12%.What is Springfield's weighted average cost of capital (WACC)?

A) 9.17%
B) 9.57%
C) 10.17%
D) 11.17%
Question
Springfield Corporation,whose tax rate is 40%,has two sources of funds: long-term debt with a market value of $8,000,000 and an interest rate of 8%,and equity capital with a market value of $12,000,000 and a cost of equity of 12%.Springfield has two operating divisions,the Blue division and the Gold division,with the following financial measures for the current year:
Total Assets Current LiabilitiesOperating Income Blue Div. $9,500,000$2,800,000$1,055,000Gold Div.$11,000,000$2,200,000$1,200,000\begin{array}{|l|l|l|l|}\hline & \text {Total Assets} &\text { Current Liabilities} & \text {Operating Income} \\\hline\text { Blue Div. }&\$ 9,500,000 & \$ 2,800,000& \$ 1,055,000 \\\hline \text {Gold Div.} & \$ 11,000,000 & \$ 2,200,000 & \$ 1,200,000 \\\hline\end{array}
What is Economic Value Added (EVA)for the Blue Division?

A) -$233,400
B) $21,960
C) $188,600
D) $433,960
Question
Answer the following questions using the information below:
Waldorf Company has two sources of funds: long-term debt with a market and book value of $5 million issued at an interest rate of 12%, and equity capital that has a market value of $4 million (book value of $2 million). Waldorf Company has profit centers in the following locations with the following operating incomes, total assets, and current liabilities. The cost of equity capital is 12%, while the tax rate is 25%.
 Operating Income  Assets  Current Liabilities  St. Louis $480,000$2,000,000$100,000 Cedar Rapids $600,000$4,000,000$300,000 Wichita $1,020,000$6,000,000$600,000\begin{array} { | l | r | r | r | } \hline & \text { Operating Income } & \text { Assets } & \text { Current Liabilities } \\\hline \text { St. Louis } & \$ 480,000 & \$ 2,000,000 & \$ 100,000 \\\hline \text { Cedar Rapids } & \$ 600,000 & \$ 4,000,000 & \$ 300,000 \\\hline \text { Wichita } & \$ 1,020,000 & \$ 6,000,000 & \$ 600,000 \\\hline\end{array}

-What is the EVA for Wichita?

A) $225,000
B) $765,000
C) $207,180
D) $557,820
Question
Which of the following is a performance measure?

A) retained earnings
B) market value
C) present value of cash flows
D) economic value added
Question
Answer the following questions using the information below:
Care Inc., has two divisions that operate independently of one another. The financial data for the year 2015 reported the following results:
 North  South  Sales $6,000,000$5,000,000 Operating income 1,500,0001,200,000 Taxable income 1,200,000700,000 Investment 14,000,00010,000,000\begin{array} { l r r } & \text { North } & \text { South } \\\text { Sales } & \$ 6,000,000 & \$ 5,000,000 \\\text { Operating income } & 1,500,000 & 1,200,000 \\\text { Taxable income } & 1,200,000 & 700,000 \\\text { Investment } & 14,000,000 & 10,000,000\end{array} The company's desired rate of return is 10%. Income is defined as operating income.

-Which division has the best return on investment and which division has the best residual income figure,respectively?

A) North, North
B) South, South
C) North, South
D) South, North
Question
Answer the following questions using the information below:
Coldbrook Company has two sources of funds: long-term debt with a market and book value of $15 million issued at an interest rate of 10%, and equity capital that has a market value of $9 million (book value of $5 million). Coldbrook Company has profit centers in the following locations with the following operating incomes, total assets, and current liabilities. The cost of equity capital is 15%, while the tax rate is 30%.
 Operating Income  Assets  Current Liabilities  Bish Bash Falls $815,000$3,750,000$800,000 Brooksville $1,100,000$5,000,000$1,200,000 Stonybrook $2,450,000$9,250,000$3,180,000\begin{array} { | l | r | r | r | } \hline & \text { Operating Income } & \text { Assets } & \text { Current Liabilities } \\\hline \text { Bish Bash Falls } & \$ 815,000 & \$ 3,750,000 & \$ 800,000 \\\hline \text { Brooksville } & \$ 1,100,000 & \$ 5,000,000 & \$ 1,200,000 \\\hline \text { Stonybrook } & \$ 2,450,000 & \$ 9,250,000 & \$ 3,180,000 \\\hline\end{array}

-What is the EVA for Brooksville?

A) $476,250
B) $428,000
C) $415,525
D) $390,000
Question
The required rate of return multiplied by the investment is the ________.

A) sunk cost of the investment
B) historical cost of the investment
C) imputed cost of the investment
D) return on sales
Question
Which of the following satisfies the DuPont method of profitability analysis?

A) Income / Investment = Income / Total costs + Revenues / Equity
B) Income / Investment = Income / Revenues + Revenues / Investment
C) Income / Investment = Income / Revenues × Revenues / Investment
D) Income / Investment = Income / Total costs × Revenues / Equity
Question
Answer the following questions using the information below:
Care Inc., has two divisions that operate independently of one another. The financial data for the year 2015 reported the following results:
 North  South  Sales $6,000,000$5,000,000 Operating income 1,500,0001,200,000 Taxable income 1,200,000700,000 Investment 14,000,00010,000,000\begin{array} { l r r } & \text { North } & \text { South } \\\text { Sales } & \$ 6,000,000 & \$ 5,000,000 \\\text { Operating income } & 1,500,000 & 1,200,000 \\\text { Taxable income } & 1,200,000 & 700,000 \\\text { Investment } & 14,000,000 & 10,000,000\end{array} The company's desired rate of return is 10%. Income is defined as operating income.

-What are the respective return-on-investment ratios for the North and South Divisions?

A) 10.00% and 15.00%
B) 11.71% and 14.00%
C) 10.71% and 12.00%
D) 12.50% and 15.00%
Question
Answer the following questions using the information below:
Waldorf Company has two sources of funds: long-term debt with a market and book value of $5 million issued at an interest rate of 12%, and equity capital that has a market value of $4 million (book value of $2 million). Waldorf Company has profit centers in the following locations with the following operating incomes, total assets, and current liabilities. The cost of equity capital is 12%, while the tax rate is 25%.
 Operating Income  Assets  Current Liabilities  St. Louis $480,000$2,000,000$100,000 Cedar Rapids $600,000$4,000,000$300,000 Wichita $1,020,000$6,000,000$600,000\begin{array} { | l | r | r | r | } \hline & \text { Operating Income } & \text { Assets } & \text { Current Liabilities } \\\hline \text { St. Louis } & \$ 480,000 & \$ 2,000,000 & \$ 100,000 \\\hline \text { Cedar Rapids } & \$ 600,000 & \$ 4,000,000 & \$ 300,000 \\\hline \text { Wichita } & \$ 1,020,000 & \$ 6,000,000 & \$ 600,000 \\\hline\end{array}

-What is the EVA for St.Louis?

A) $127,870
B) $163,730
C) $196,270
D) $360,000
Question
A company which favors the residual income approach wants managers to ________.

A) concentrate on maximizing an absolute amount of dollars
B) concentrate on maximizing a percentage return
C) maximize the investment turnover ratio
D) maximize return on sales
Question
Answer the following questions using the information below:
Waldorf Company has two sources of funds: long-term debt with a market and book value of $5 million issued at an interest rate of 12%, and equity capital that has a market value of $4 million (book value of $2 million). Waldorf Company has profit centers in the following locations with the following operating incomes, total assets, and current liabilities. The cost of equity capital is 12%, while the tax rate is 25%.
 Operating Income  Assets  Current Liabilities  St. Louis $480,000$2,000,000$100,000 Cedar Rapids $600,000$4,000,000$300,000 Wichita $1,020,000$6,000,000$600,000\begin{array} { | l | r | r | r | } \hline & \text { Operating Income } & \text { Assets } & \text { Current Liabilities } \\\hline \text { St. Louis } & \$ 480,000 & \$ 2,000,000 & \$ 100,000 \\\hline \text { Cedar Rapids } & \$ 600,000 & \$ 4,000,000 & \$ 300,000 \\\hline \text { Wichita } & \$ 1,020,000 & \$ 6,000,000 & \$ 600,000 \\\hline\end{array}

-What is the EVA for Cedar Rapids?

A) $67,790
B) $110,000
C) $117,000
D) $152,500
Question
Return on investment,Residual income,or Economic value added measures are more appropriate than return on sales because they consider only the investment to measure the performance.
Question
In an EVA calculation,the corporate charge for a division's investment is based on a weighted average of the after-tax interest rate on the firm's debt and the cost of the firm's equity.
Question
All other things held constant,increase in assets such as receivables or decrease in operating income results in an increase in return on investment.
Question
Antique Corp uses the investment center concept for the museums that it manages.Selected operating data for three of its museums for 2015 are as follows:
Antique Corp uses the investment center concept for the museums that it manages.Selected operating data for three of its museums for 2015 are as follows:   Required: a.Compute the return on investment for each division. b.Which museum manager is doing best based only on ROI? Why? c.What other factors should be included when evaluating the managers?<div style=padding-top: 35px> Required:
a.Compute the return on investment for each division.
b.Which museum manager is doing best based only on ROI? Why?
c.What other factors should be included when evaluating the managers?
Question
Required rate of return multiplied by the investment is the weighted average cost of the investment.
Question
Economic value added,unlike residual income,charges managers for the costs of their investments in long-term assets and working capital.
Question
Historical costs are costs recognized in particular situations that are not usually recognized by accrual accounting procedures.
Question
Reducing the investment base involves decreasing idle cash,managing credit judiciously,determining proper inventory levels,and spending carefully on long-term assets.
Question
Return on sales measures how effectively costs are managed.
Question
The DuPont method recognizes the two basic ingredients in profit making: increasing the income per dollar of revenues and using assets to generate more revenues.
Question
The objective of maximizing return on investment may induce managers of highly profitable divisions to reject projects that from the viewpoint of the overall organization should be accepted
Question
Gas Supply Corporation uses the investment center concept for the gasoline stations that it manages in the city.Consolidated has a 15% required rate of return on investment in order for a branch station to be viable.Select operating data for three of its stations for 2015 are as follows:
Gas Supply Corporation uses the investment center concept for the gasoline stations that it manages in the city.Consolidated has a 15% required rate of return on investment in order for a branch station to be viable.Select operating data for three of its stations for 2015 are as follows:   Required: a.Compute the return on investment for each station. b.Which station manager is doing best based only on ROI? Why? c.Are any of the stations in danger of being closed due to lack of performance? d.What other factors should be included when evaluating the managers?<div style=padding-top: 35px> Required:
a.Compute the return on investment for each station.
b.Which station manager is doing best based only on ROI? Why?
c.Are any of the stations in danger of being closed due to lack of performance?
d.What other factors should be included when evaluating the managers?
Question
To evaluate overall aggregate performance,return on investment and residual income measures are more appropriate than return on sales.
Question
A major weakness of comparing two companies using only operating incomes as the basis of comparison is that it ignores the differences in the size of the investment.
Question
Answer the following questions using the information below:
Coldbrook Company has two sources of funds: long-term debt with a market and book value of $15 million issued at an interest rate of 10%, and equity capital that has a market value of $9 million (book value of $5 million). Coldbrook Company has profit centers in the following locations with the following operating incomes, total assets, and current liabilities. The cost of equity capital is 15%, while the tax rate is 30%.
 Operating Income  Assets  Current Liabilities  Bish Bash Falls $815,000$3,750,000$800,000 Brooksville $1,100,000$5,000,000$1,200,000 Stonybrook $2,450,000$9,250,000$3,180,000\begin{array} { | l | r | r | r | } \hline & \text { Operating Income } & \text { Assets } & \text { Current Liabilities } \\\hline \text { Bish Bash Falls } & \$ 815,000 & \$ 3,750,000 & \$ 800,000 \\\hline \text { Brooksville } & \$ 1,100,000 & \$ 5,000,000 & \$ 1,200,000 \\\hline \text { Stonybrook } & \$ 2,450,000 & \$ 9,250,000 & \$ 3,180,000 \\\hline\end{array}

-What is the EVA for Stonybrook?

A) $1,108,000
B) $1,168,700
C) $1,315,063
D) $1,403,063
Question
Moto Corp allows its divisions to operate as autonomous units.The operating data for 2015 follow:
Moto Corp allows its divisions to operate as autonomous units.The operating data for 2015 follow:   Required: a.Compute the investment turnover for each division. b.Compute the return on sales for each division. c.Compute the return on investment for each division. d.Which division manager is doing best? Why? e.What other factors should be included when evaluating the managers? For parts (b)and (c)income is defined as operating income.<div style=padding-top: 35px> Required:
a.Compute the investment turnover for each division.
b.Compute the return on sales for each division.
c.Compute the return on investment for each division.
d.Which division manager is doing best? Why?
e.What other factors should be included when evaluating the managers?
For parts (b)and (c)income is defined as operating income.
Question
In an EVA calculation,the appropriate measure of a division's profit would be that division's pre-tax operating income.
Question
Return on investment is an accounting measure of income minus a dollar amount for required return on an accounting measure of investment.
Question
Companies that adopt the EVA concept define investment as total assets employed minus current liabilities.
Question
In an EVA calculation,the measure of the invested capital for a division would be that division's assets minus that division's long-term liabilities.
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Deck 23: Performance Measurement, compensation, and Multinational Considerations
1
Managers usually use the return on investment to evaluate ________.

A) the performance of a subdivision
B) the accounting principles followed
C) the size of the investment
D) the balance of working capital
A
2
Assume you are evaluating a manufacturing company.Match the various organizational activities and concepts with the performance measures listed.Some items may have more than one match.
Activities:
Assume you are evaluating a manufacturing company.Match the various organizational activities and concepts with the performance measures listed.Some items may have more than one match. Activities:   Performance measure:  Performance measure:
Assume you are evaluating a manufacturing company.Match the various organizational activities and concepts with the performance measures listed.Some items may have more than one match. Activities:   Performance measure:
3
An example of a performance measure with a long time horizon is ________.

A) direct materials efficiency variances
B) overhead spending variances
C) number of new patents developed
D) quality of room service
C
4
The return on investment is usually considered the most popular approach to measure performance because ________.

A) it blends all the ingredients of profitability into a single percentage
B) once determined, there is no need to use it with other measures of performance
C) it throws light on the company's working capital
D) it measures the cash balance of the company in the most efficient manner
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5
A report that measures financial and nonfinancial performance measures for various organization units in a single report is called a(n)________.

A) balanced scorecard
B) financial report scorecard
C) goal-congruence report
D) investment success report
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6
Customer-satisfaction measures are an example of the ________.

A) goal-congruence approach
B) balanced scorecard approach
C) financial report scorecard approach
D) investment success approach
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7
The balanced scorecard in most organizations is broken down into the following categories: commercial perspective,supplier perspective,external business-process perspective,and productivity perspective.
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8
Which of the following steps in designing an accounting-based performance measure includes decisions of selecting net income as a measure of financial performance?

A) choosing performance measures that align with the firm's financial goals
B) choosing the time horizon of each performance measure
C) choosing the details for each performance measure
D) choosing a target level of performance
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9
Companies are increasingly using nonfinancial measures to evaluate performance.Why? Since these numbers do not come from the company's financial records,why are they used?
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10
Many common performance measures,such as customer satisfaction,rely on internal financial accounting information.
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11
Some companies present financial and nonfinancial performance measures for various organization units in a single report called the balanced scorecard.
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12
Which of the following is true about designing an accounting-based performance measure?

A) The decisions made in steps are followed in a hierarchial order.
B) The issues considered in each step are independent.
C) Management's beliefs are not required during the analyses.
D) Behavioral criteria are important when evaluating the steps.
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13
When designing the steps in accounting-based performance measures,should the decisions in these steps be sequential?
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14
The ________ method of profitability analysis recognizes the two basic ingredients in profit-making: increasing income per dollar of revenues and using assets to generate more revenues.

A) Balanced Scorecard
B) Residual-Income
C) DuPont
D) Economic Value Added
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15
Return on investment can be increased by ________.

A) increasing current assets
B) decreasing total assets
C) decreasing revenues
D) increasing the debt portion of the capital
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16
Average number of repeat visits in a spa unit is a ________ measure on a balanced scorecard.

A) customer perspective
B) financial perspective
C) learning-and-growth perspective
D) internal-business-process perspective
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17
Make a list of steps of designing an accounting based performance measure.Give example of decisions taken under each step.
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18
Aaron Corp's net income is $25,000.What is the amount of the investment if the return on investment is 20%?

A) $50,000
B) $100,000
C) $125,000
D) $250,000
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19
Which of the following steps in designing an accounting-based performance measure includes decisions such as defining assets as total assets or net assets in the calculation of return on assets?

A) choosing performance measures that align with top management's financial goals
B) choosing the time horizon of each performance measure
C) choosing the details for each performance measure
D) choosing a target level of performance
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20
The first step in designing accounting based performance measures is to choose a target level of performance and feedback mechanism.
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21
Answer the following questions using the information below:
The Cybertronics Corporation reported the following information for its Cyclotron Division:
 Revenues $2,000,000 Operating costs 1,200,000 Operating assets 1,000,000\begin{array} { l r } \text { Revenues } & \$ 2,000,000 \\\text { Operating costs } & 1,200,000 \\\text { Operating assets } & 1,000,000\end{array} Income is defined as operating income.

-What is the Cyclotron Division's return on sales?

A) 20%
B) 40%
C) 50%
D) 60%
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22
Aeralia Inc.,has two regional offices.The data for each are as follows:  Maryland  New Jersey  Revenues $290,000$298,000 Operating assets 2,500,0004,500,000 Net operating income 1,000,0001,200,000\begin{array} { l r r } & \text { Maryland } & \text { New Jersey } \\\text { Revenues } & \$ 290,000 & \$ 298,000 \\\text { Operating assets } & 2,500,000 & 4,500,000 \\\text { Net operating income } & 1,000,000 & 1,200,000\end{array} What is the Maryland Division's return on investment?

A) 40%
B) 54%
C) 12%
D) 3.57%
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23
Zenith Corporation's net income is $78,400.What is the return on investment if the amount of the investment is $500,000?

A) 14.88%
B) 12.78%
C) 15.68%
D) 16%
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24
Answer the following questions using the information below:
The top management at Groundsource Company, a manufacturer of lawn and garden equipment, is attempting to recover from a fire that destroyed some of their accounting records. The main computer system was also severely damaged. The following information was salvaged:
 Tractor Division  Tiller Division Digger Division  Sales $10,000,000(a)$2,400,000 Net operating income $1,000,000$1,440,000$600,000 Operating assets (b)(c)$2,000,000 Return on investment 0.200.10 (d)  Return on sales (e)0.120.25 Investment turnover  (f)  (g) 1.2\begin{array}{lrrr}&\text { Tractor Division }& \text { Tiller Division }& \text {Digger Division }\\\text { Sales } & \$ 10,000,000 & (\mathrm{a}) & \$ 2,400,000 \\\text { Net operating income } & \$ 1,000,000 & \$ 1,440,000 & \$ 600,000 \\\text { Operating assets } & (\mathrm{b}) & (\mathrm{c}) & \$ 2,000,000 \\\text { Return on investment } & 0.20 & 0.10 & \text { (d) } \\\text { Return on sales } & (\mathrm{e}) & 0.12 & 0.25 \\\text { Investment turnover } & \text { (f) } & \text { (g) } & 1.2\end{array}

-What is the Digger Division's return on investment?

A) .25
B) .30
C) .45
D) .60
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25
Answer the following questions using the information below:
The top management at Amore Corp, a manufacturer of computer games, is attempting to recover from a flood that destroyed some of their accounting records. The main computer system was also severely damaged. The following information was salvaged:
 Alpha Division  Beta Division  Gamma Division  Sales $5,500,000(a)$2,500,000 Net operating income $3,500,000$1,100,000$1,200,000 Operating assets (b)(c)$1,600,000 Return on investment 0.250.15 (d)  Return on sales (e)0.100.5 Investment turnover (f) (g) 1.5\begin{array}{lrrr}&\text { Alpha Division }&\text { Beta Division }&\text { Gamma Division }\\\text { Sales } & \$ 5,500,000 & (\mathrm{a}) & \$ 2,500,000 \\\text { Net operating income } & \$ 3,500,000 & \$ 1,100,000 & \$ 1,200,000 \\\text { Operating assets } & (\mathrm{b}) & (\mathrm{c}) & \$ 1,600,000 \\\text { Return on investment } & 0.25 & 0.15 & \text { (d) } \\\text { Return on sales } & (\mathrm{e}) & 0.10 & 0.5 \\\text { Investment turnover } & (\mathrm{f}) & \text { (g) } & 1.5\end{array}

-What is the Gamma Division's return on investment (d)?

A) 0.25
B) 0.45
C) 0.60
D) 0.75
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26
Answer the following questions using the information below:
The top management at Amore Corp, a manufacturer of computer games, is attempting to recover from a flood that destroyed some of their accounting records. The main computer system was also severely damaged. The following information was salvaged:
 Alpha Division  Beta Division  Gamma Division  Sales $5,500,000(a)$2,500,000 Net operating income $3,500,000$1,100,000$1,200,000 Operating assets (b)(c)$1,600,000 Return on investment 0.250.15 (d)  Return on sales (e)0.100.5 Investment turnover (f) (g) 1.5\begin{array}{lrrr}&\text { Alpha Division }&\text { Beta Division }&\text { Gamma Division }\\\text { Sales } & \$ 5,500,000 & (\mathrm{a}) & \$ 2,500,000 \\\text { Net operating income } & \$ 3,500,000 & \$ 1,100,000 & \$ 1,200,000 \\\text { Operating assets } & (\mathrm{b}) & (\mathrm{c}) & \$ 1,600,000 \\\text { Return on investment } & 0.25 & 0.15 & \text { (d) } \\\text { Return on sales } & (\mathrm{e}) & 0.10 & 0.5 \\\text { Investment turnover } & (\mathrm{f}) & \text { (g) } & 1.5\end{array}

-What were the sales for the Beta Division (a)?

A) $8,666,667
B) $11,904,760
C) $11,000,000
D) $14,303,600
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27
Answer the following questions using the information below:
The top management at Amore Corp, a manufacturer of computer games, is attempting to recover from a flood that destroyed some of their accounting records. The main computer system was also severely damaged. The following information was salvaged:
 Alpha Division  Beta Division  Gamma Division  Sales $5,500,000(a)$2,500,000 Net operating income $3,500,000$1,100,000$1,200,000 Operating assets (b)(c)$1,600,000 Return on investment 0.250.15 (d)  Return on sales (e)0.100.5 Investment turnover (f) (g) 1.5\begin{array}{lrrr}&\text { Alpha Division }&\text { Beta Division }&\text { Gamma Division }\\\text { Sales } & \$ 5,500,000 & (\mathrm{a}) & \$ 2,500,000 \\\text { Net operating income } & \$ 3,500,000 & \$ 1,100,000 & \$ 1,200,000 \\\text { Operating assets } & (\mathrm{b}) & (\mathrm{c}) & \$ 1,600,000 \\\text { Return on investment } & 0.25 & 0.15 & \text { (d) } \\\text { Return on sales } & (\mathrm{e}) & 0.10 & 0.5 \\\text { Investment turnover } & (\mathrm{f}) & \text { (g) } & 1.5\end{array}

-What is the value of the operating assets belonging to the Beta Division (c)?

A) $7,333,333
B) $11,904,760
C) $8,333,333
D) $14,303,600
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28
Bouvous Corporation had the following information for 2015:  Revenue $400,000 Operating expenses 350,000 Total assets 500,000\begin{array}{lr}\text { Revenue } & \$ 400,000 \\\text { Operating expenses } & 350,000 \\\text { Total assets } & 500,000\end{array} What is the return on investment?

A) 10%
B) 20%
C) 25%
D) 18.2%
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29
Answer the following questions using the information below:
The top management at Groundsource Company, a manufacturer of lawn and garden equipment, is attempting to recover from a fire that destroyed some of their accounting records. The main computer system was also severely damaged. The following information was salvaged:
 Tractor Division  Tiller Division Digger Division  Sales $10,000,000(a)$2,400,000 Net operating income $1,000,000$1,440,000$600,000 Operating assets (b)(c)$2,000,000 Return on investment 0.200.10 (d)  Return on sales (e)0.120.25 Investment turnover  (f)  (g) 1.2\begin{array}{lrrr}&\text { Tractor Division }& \text { Tiller Division }& \text {Digger Division }\\\text { Sales } & \$ 10,000,000 & (\mathrm{a}) & \$ 2,400,000 \\\text { Net operating income } & \$ 1,000,000 & \$ 1,440,000 & \$ 600,000 \\\text { Operating assets } & (\mathrm{b}) & (\mathrm{c}) & \$ 2,000,000 \\\text { Return on investment } & 0.20 & 0.10 & \text { (d) } \\\text { Return on sales } & (\mathrm{e}) & 0.12 & 0.25 \\\text { Investment turnover } & \text { (f) } & \text { (g) } & 1.2\end{array}

-What is the Tractor Division's investment turnover?

A).50
B) 1.0
C) 2.0
D) 2.5
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30
Answer the following questions using the information below:
The Cybertronics Corporation reported the following information for its Cyclotron Division:
 Revenues $2,000,000 Operating costs 1,200,000 Operating assets 1,000,000\begin{array} { l r } \text { Revenues } & \$ 2,000,000 \\\text { Operating costs } & 1,200,000 \\\text { Operating assets } & 1,000,000\end{array} Income is defined as operating income.

-What is the Cyclotron Division's return on investment?

A) 35%
B) 75%
C) 50%
D) 80%
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31
Answer the following questions using the information below:
The top management at Amore Corp, a manufacturer of computer games, is attempting to recover from a flood that destroyed some of their accounting records. The main computer system was also severely damaged. The following information was salvaged:
 Alpha Division  Beta Division  Gamma Division  Sales $5,500,000(a)$2,500,000 Net operating income $3,500,000$1,100,000$1,200,000 Operating assets (b)(c)$1,600,000 Return on investment 0.250.15 (d)  Return on sales (e)0.100.5 Investment turnover (f) (g) 1.5\begin{array}{lrrr}&\text { Alpha Division }&\text { Beta Division }&\text { Gamma Division }\\\text { Sales } & \$ 5,500,000 & (\mathrm{a}) & \$ 2,500,000 \\\text { Net operating income } & \$ 3,500,000 & \$ 1,100,000 & \$ 1,200,000 \\\text { Operating assets } & (\mathrm{b}) & (\mathrm{c}) & \$ 1,600,000 \\\text { Return on investment } & 0.25 & 0.15 & \text { (d) } \\\text { Return on sales } & (\mathrm{e}) & 0.10 & 0.5 \\\text { Investment turnover } & (\mathrm{f}) & \text { (g) } & 1.5\end{array}

-What is the Alpha Division's return on sales (e)?

A) 60%
B) 65%
C) 63.64%
D) 53.63%
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32
Answer the following questions using the information below:
The top management at Groundsource Company, a manufacturer of lawn and garden equipment, is attempting to recover from a fire that destroyed some of their accounting records. The main computer system was also severely damaged. The following information was salvaged:
 Tractor Division  Tiller Division Digger Division  Sales $10,000,000(a)$2,400,000 Net operating income $1,000,000$1,440,000$600,000 Operating assets (b)(c)$2,000,000 Return on investment 0.200.10 (d)  Return on sales (e)0.120.25 Investment turnover  (f)  (g) 1.2\begin{array}{lrrr}&\text { Tractor Division }& \text { Tiller Division }& \text {Digger Division }\\\text { Sales } & \$ 10,000,000 & (\mathrm{a}) & \$ 2,400,000 \\\text { Net operating income } & \$ 1,000,000 & \$ 1,440,000 & \$ 600,000 \\\text { Operating assets } & (\mathrm{b}) & (\mathrm{c}) & \$ 2,000,000 \\\text { Return on investment } & 0.20 & 0.10 & \text { (d) } \\\text { Return on sales } & (\mathrm{e}) & 0.12 & 0.25 \\\text { Investment turnover } & \text { (f) } & \text { (g) } & 1.2\end{array}

-What is the value of the operating assets belonging to the Tiller Division?

A) $ 10,000,000
B) $ 12,000,000
C) $ 14,400,000
D) $ 15,000,000
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33
Answer the following questions using the information below:
The Cybertronics Corporation reported the following information for its Cyclotron Division:
 Revenues $2,000,000 Operating costs 1,200,000 Operating assets 1,000,000\begin{array} { l r } \text { Revenues } & \$ 2,000,000 \\\text { Operating costs } & 1,200,000 \\\text { Operating assets } & 1,000,000\end{array} Income is defined as operating income.

-What is the Cyclotron Division's investment turnover ratio?

A) 2.00
B) 3.33
C) 2.50
D) 0.80
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34
The weighted-average cost of capital (WACC)equals ________.

A) the after-tax average cost of all the long-term and short-term funds
B) the after-tax average cost of all the long-term funds
C) the pre-tax average cost of all the short-term funds
D) the pre-tax average cost of all the long-term and short-term funds
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35
Answer the following questions using the information below:
The top management at Groundsource Company, a manufacturer of lawn and garden equipment, is attempting to recover from a fire that destroyed some of their accounting records. The main computer system was also severely damaged. The following information was salvaged:
 Tractor Division  Tiller Division Digger Division  Sales $10,000,000(a)$2,400,000 Net operating income $1,000,000$1,440,000$600,000 Operating assets (b)(c)$2,000,000 Return on investment 0.200.10 (d)  Return on sales (e)0.120.25 Investment turnover  (f)  (g) 1.2\begin{array}{lrrr}&\text { Tractor Division }& \text { Tiller Division }& \text {Digger Division }\\\text { Sales } & \$ 10,000,000 & (\mathrm{a}) & \$ 2,400,000 \\\text { Net operating income } & \$ 1,000,000 & \$ 1,440,000 & \$ 600,000 \\\text { Operating assets } & (\mathrm{b}) & (\mathrm{c}) & \$ 2,000,000 \\\text { Return on investment } & 0.20 & 0.10 & \text { (d) } \\\text { Return on sales } & (\mathrm{e}) & 0.12 & 0.25 \\\text { Investment turnover } & \text { (f) } & \text { (g) } & 1.2\end{array}

-What is the Tractor Division's return on sales?

A) 0.10
B) 0.12
C) 0.15
D) 0.20
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36
Answer the following questions using the information below:
The top management at Groundsource Company, a manufacturer of lawn and garden equipment, is attempting to recover from a fire that destroyed some of their accounting records. The main computer system was also severely damaged. The following information was salvaged:
 Tractor Division  Tiller Division Digger Division  Sales $10,000,000(a)$2,400,000 Net operating income $1,000,000$1,440,000$600,000 Operating assets (b)(c)$2,000,000 Return on investment 0.200.10 (d)  Return on sales (e)0.120.25 Investment turnover  (f)  (g) 1.2\begin{array}{lrrr}&\text { Tractor Division }& \text { Tiller Division }& \text {Digger Division }\\\text { Sales } & \$ 10,000,000 & (\mathrm{a}) & \$ 2,400,000 \\\text { Net operating income } & \$ 1,000,000 & \$ 1,440,000 & \$ 600,000 \\\text { Operating assets } & (\mathrm{b}) & (\mathrm{c}) & \$ 2,000,000 \\\text { Return on investment } & 0.20 & 0.10 & \text { (d) } \\\text { Return on sales } & (\mathrm{e}) & 0.12 & 0.25 \\\text { Investment turnover } & \text { (f) } & \text { (g) } & 1.2\end{array}

-What were the sales for the Tiller Division?

A) $9,600,000
B) $12,000,000
C) $15,000,000
D) $15,500,000
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37
Answer the following questions using the information below:
The top management at Groundsource Company, a manufacturer of lawn and garden equipment, is attempting to recover from a fire that destroyed some of their accounting records. The main computer system was also severely damaged. The following information was salvaged:
 Tractor Division  Tiller Division Digger Division  Sales $10,000,000(a)$2,400,000 Net operating income $1,000,000$1,440,000$600,000 Operating assets (b)(c)$2,000,000 Return on investment 0.200.10 (d)  Return on sales (e)0.120.25 Investment turnover  (f)  (g) 1.2\begin{array}{lrrr}&\text { Tractor Division }& \text { Tiller Division }& \text {Digger Division }\\\text { Sales } & \$ 10,000,000 & (\mathrm{a}) & \$ 2,400,000 \\\text { Net operating income } & \$ 1,000,000 & \$ 1,440,000 & \$ 600,000 \\\text { Operating assets } & (\mathrm{b}) & (\mathrm{c}) & \$ 2,000,000 \\\text { Return on investment } & 0.20 & 0.10 & \text { (d) } \\\text { Return on sales } & (\mathrm{e}) & 0.12 & 0.25 \\\text { Investment turnover } & \text { (f) } & \text { (g) } & 1.2\end{array}

-What is the value of the operating assets belonging to the Tractor Division?

A) $ 3,500,000
B) $4,000,000
C) $4,500,000
D) $5,000,000
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38
Answer the following questions using the information below:
The top management at Amore Corp, a manufacturer of computer games, is attempting to recover from a flood that destroyed some of their accounting records. The main computer system was also severely damaged. The following information was salvaged:
 Alpha Division  Beta Division  Gamma Division  Sales $5,500,000(a)$2,500,000 Net operating income $3,500,000$1,100,000$1,200,000 Operating assets (b)(c)$1,600,000 Return on investment 0.250.15 (d)  Return on sales (e)0.100.5 Investment turnover (f) (g) 1.5\begin{array}{lrrr}&\text { Alpha Division }&\text { Beta Division }&\text { Gamma Division }\\\text { Sales } & \$ 5,500,000 & (\mathrm{a}) & \$ 2,500,000 \\\text { Net operating income } & \$ 3,500,000 & \$ 1,100,000 & \$ 1,200,000 \\\text { Operating assets } & (\mathrm{b}) & (\mathrm{c}) & \$ 1,600,000 \\\text { Return on investment } & 0.25 & 0.15 & \text { (d) } \\\text { Return on sales } & (\mathrm{e}) & 0.10 & 0.5 \\\text { Investment turnover } & (\mathrm{f}) & \text { (g) } & 1.5\end{array}

-What is the value of the operating assets belonging to the Alpha Division (b)?

A) $8,666,667
B) $14,000,000
C) $13,000,000
D) $14,303,600
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39
Answer the following questions using the information below:
The top management at Groundsource Company, a manufacturer of lawn and garden equipment, is attempting to recover from a fire that destroyed some of their accounting records. The main computer system was also severely damaged. The following information was salvaged:
 Tractor Division  Tiller Division Digger Division  Sales $10,000,000(a)$2,400,000 Net operating income $1,000,000$1,440,000$600,000 Operating assets (b)(c)$2,000,000 Return on investment 0.200.10 (d)  Return on sales (e)0.120.25 Investment turnover  (f)  (g) 1.2\begin{array}{lrrr}&\text { Tractor Division }& \text { Tiller Division }& \text {Digger Division }\\\text { Sales } & \$ 10,000,000 & (\mathrm{a}) & \$ 2,400,000 \\\text { Net operating income } & \$ 1,000,000 & \$ 1,440,000 & \$ 600,000 \\\text { Operating assets } & (\mathrm{b}) & (\mathrm{c}) & \$ 2,000,000 \\\text { Return on investment } & 0.20 & 0.10 & \text { (d) } \\\text { Return on sales } & (\mathrm{e}) & 0.12 & 0.25 \\\text { Investment turnover } & \text { (f) } & \text { (g) } & 1.2\end{array}

-What is the Tiller Division's investment turnover?

A) .50
B) .833
C) 1.2
D) 1.5
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40
Bouvous Corp has two regional offices.The data for each are as follows:  Maryland  New Jersey  Revenues $290,000$300,000 Operating assets 2,400,0004,500,000 Net operating income 1,008,0001,500,000\begin{array} { l r r } & \text { Maryland } & \text { New Jersey } \\\text { Revenues } & \$ 290,000 & \$ 300,000 \\\text { Operating assets } & 2,400,000 & 4,500,000 \\\text { Net operating income } & 1,008,000 & 1,500,000\end{array} What is the return on investment for the New Jersey Division?

A) 21%
B) 33.33%
C) 66.67%
D) 25%
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41
Answer the following questions using the information below:
Care Inc., has two divisions that operate independently of one another. The financial data for the year 2015 reported the following results:
 North  South  Sales $6,000,000$5,000,000 Operating income 1,500,0001,200,000 Taxable income 1,200,000700,000 Investment 14,000,00010,000,000\begin{array} { l r r } & \text { North } & \text { South } \\\text { Sales } & \$ 6,000,000 & \$ 5,000,000 \\\text { Operating income } & 1,500,000 & 1,200,000 \\\text { Taxable income } & 1,200,000 & 700,000 \\\text { Investment } & 14,000,000 & 10,000,000\end{array} The company's desired rate of return is 10%. Income is defined as operating income.

-What are the respective residual incomes for the North and South Divisions?

A) $60,000 and $100,000
B) $300,000 and $60,000
C) $300,000 and $100,000
D) $100,000 and $200,000
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42
Times Corporation,whose tax rate is 40%,has two sources of funds: long-term debt with a market value of $6,000,000 and an interest rate of 9%,and equity capital with a market value of $18,000,000 and a cost of equity of 11%.Times Corporation's after-tax cost of debt is ________.

A) 3.40%
B) 5.40%
C) 5.00%
D) 7.40%
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43
Economic value added is equal to ________.

A) After-tax operating income - [Weighted-average cost of capital + (Total assets - Current liabilities)]
B) Pre-tax operating income - [Weighted-average cost of capital + (Total assets - Current liabilities)]
C) After-tax operating income - [Weighted-average cost of capital × (Total assets - Current liabilities)]
D) Pre-tax operating income - [Weighted-average cost of capital × (Total assets - Current liabilities)]
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44
Answer the following questions using the information below:
Coldbrook Company has two sources of funds: long-term debt with a market and book value of $15 million issued at an interest rate of 10%, and equity capital that has a market value of $9 million (book value of $5 million). Coldbrook Company has profit centers in the following locations with the following operating incomes, total assets, and current liabilities. The cost of equity capital is 15%, while the tax rate is 30%.
 Operating Income  Assets  Current Liabilities  Bish Bash Falls $815,000$3,750,000$800,000 Brooksville $1,100,000$5,000,000$1,200,000 Stonybrook $2,450,000$9,250,000$3,180,000\begin{array} { | l | r | r | r | } \hline & \text { Operating Income } & \text { Assets } & \text { Current Liabilities } \\\hline \text { Bish Bash Falls } & \$ 815,000 & \$ 3,750,000 & \$ 800,000 \\\hline \text { Brooksville } & \$ 1,100,000 & \$ 5,000,000 & \$ 1,200,000 \\\hline \text { Stonybrook } & \$ 2,450,000 & \$ 9,250,000 & \$ 3,180,000 \\\hline\end{array}

-What is the EVA for Bish Bash Falls?

A) $338,563
B) $305,000
C) $275,500
D) $255,500
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45
Stonex Corp,whose tax rate is 40%,has two sources of funds: long-term debt with a market value of $6,000,000 and an interest rate of 8%,and equity capital with a market value of $14,000,000 and a cost of equity of 12%.Stonex has two operating divisions,the Blue division and the Gold division,with the following financial measures for the current year:  Total Assets  Current Liabilities  Operating Income  Blue Div. $9,500,000$2,500,000$1,155,000 Gold Div. $10,000,000$2,400,000$1,200,000\begin{array} { | l | l | l | l | } \hline & \text { Total Assets } & \text { Current Liabilities } & \text { Operating Income } \\\hline \text { Blue Div. } & \$ 9,500,000 & \$ 2,500,000 & \$ 1,155,000 \\\hline \text { Gold Div. } & \$ 10,000,000 & \$ 2,400,000 & \$ 1,200,000 \\\hline\end{array} Calculate EVA for the Gold Division.

A) ($57,640)
B) ($27,840)
C) ($37,340)
D) $397,440
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46
Return on investment is also known as the ________.

A) net present value
B) accounting rate of return
C) residual income
D) economic value added
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47
The after-tax average cost of all the long-term funds used by a corporation equals ________.

A) economic value added
B) cost of goodwill
C) interest cost of the capital
D) weighted-average cost of capital
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48
Using residual income as a measure of performance rather than return on investment promotes goal congruence because residual income ________.

A) places importance on the reduction of underperforming assets
B) calculates a percentage return rather than an absolute return
C) concentrates on maximizing an absolute amount of dollars
D) concentrates on maximizing the return on sales
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49
Springfield Corporation,whose tax rate is 30%,has two sources of funds: long-term debt with a market value of $6,000,000 and an interest rate of 8%,and equity capital with a market value of $15,000,000 and a cost of equity of 12%.What is Springfield's weighted average cost of capital (WACC)?

A) 9.17%
B) 9.57%
C) 10.17%
D) 11.17%
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50
Springfield Corporation,whose tax rate is 40%,has two sources of funds: long-term debt with a market value of $8,000,000 and an interest rate of 8%,and equity capital with a market value of $12,000,000 and a cost of equity of 12%.Springfield has two operating divisions,the Blue division and the Gold division,with the following financial measures for the current year:
Total Assets Current LiabilitiesOperating Income Blue Div. $9,500,000$2,800,000$1,055,000Gold Div.$11,000,000$2,200,000$1,200,000\begin{array}{|l|l|l|l|}\hline & \text {Total Assets} &\text { Current Liabilities} & \text {Operating Income} \\\hline\text { Blue Div. }&\$ 9,500,000 & \$ 2,800,000& \$ 1,055,000 \\\hline \text {Gold Div.} & \$ 11,000,000 & \$ 2,200,000 & \$ 1,200,000 \\\hline\end{array}
What is Economic Value Added (EVA)for the Blue Division?

A) -$233,400
B) $21,960
C) $188,600
D) $433,960
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51
Answer the following questions using the information below:
Waldorf Company has two sources of funds: long-term debt with a market and book value of $5 million issued at an interest rate of 12%, and equity capital that has a market value of $4 million (book value of $2 million). Waldorf Company has profit centers in the following locations with the following operating incomes, total assets, and current liabilities. The cost of equity capital is 12%, while the tax rate is 25%.
 Operating Income  Assets  Current Liabilities  St. Louis $480,000$2,000,000$100,000 Cedar Rapids $600,000$4,000,000$300,000 Wichita $1,020,000$6,000,000$600,000\begin{array} { | l | r | r | r | } \hline & \text { Operating Income } & \text { Assets } & \text { Current Liabilities } \\\hline \text { St. Louis } & \$ 480,000 & \$ 2,000,000 & \$ 100,000 \\\hline \text { Cedar Rapids } & \$ 600,000 & \$ 4,000,000 & \$ 300,000 \\\hline \text { Wichita } & \$ 1,020,000 & \$ 6,000,000 & \$ 600,000 \\\hline\end{array}

-What is the EVA for Wichita?

A) $225,000
B) $765,000
C) $207,180
D) $557,820
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52
Which of the following is a performance measure?

A) retained earnings
B) market value
C) present value of cash flows
D) economic value added
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53
Answer the following questions using the information below:
Care Inc., has two divisions that operate independently of one another. The financial data for the year 2015 reported the following results:
 North  South  Sales $6,000,000$5,000,000 Operating income 1,500,0001,200,000 Taxable income 1,200,000700,000 Investment 14,000,00010,000,000\begin{array} { l r r } & \text { North } & \text { South } \\\text { Sales } & \$ 6,000,000 & \$ 5,000,000 \\\text { Operating income } & 1,500,000 & 1,200,000 \\\text { Taxable income } & 1,200,000 & 700,000 \\\text { Investment } & 14,000,000 & 10,000,000\end{array} The company's desired rate of return is 10%. Income is defined as operating income.

-Which division has the best return on investment and which division has the best residual income figure,respectively?

A) North, North
B) South, South
C) North, South
D) South, North
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54
Answer the following questions using the information below:
Coldbrook Company has two sources of funds: long-term debt with a market and book value of $15 million issued at an interest rate of 10%, and equity capital that has a market value of $9 million (book value of $5 million). Coldbrook Company has profit centers in the following locations with the following operating incomes, total assets, and current liabilities. The cost of equity capital is 15%, while the tax rate is 30%.
 Operating Income  Assets  Current Liabilities  Bish Bash Falls $815,000$3,750,000$800,000 Brooksville $1,100,000$5,000,000$1,200,000 Stonybrook $2,450,000$9,250,000$3,180,000\begin{array} { | l | r | r | r | } \hline & \text { Operating Income } & \text { Assets } & \text { Current Liabilities } \\\hline \text { Bish Bash Falls } & \$ 815,000 & \$ 3,750,000 & \$ 800,000 \\\hline \text { Brooksville } & \$ 1,100,000 & \$ 5,000,000 & \$ 1,200,000 \\\hline \text { Stonybrook } & \$ 2,450,000 & \$ 9,250,000 & \$ 3,180,000 \\\hline\end{array}

-What is the EVA for Brooksville?

A) $476,250
B) $428,000
C) $415,525
D) $390,000
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55
The required rate of return multiplied by the investment is the ________.

A) sunk cost of the investment
B) historical cost of the investment
C) imputed cost of the investment
D) return on sales
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56
Which of the following satisfies the DuPont method of profitability analysis?

A) Income / Investment = Income / Total costs + Revenues / Equity
B) Income / Investment = Income / Revenues + Revenues / Investment
C) Income / Investment = Income / Revenues × Revenues / Investment
D) Income / Investment = Income / Total costs × Revenues / Equity
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57
Answer the following questions using the information below:
Care Inc., has two divisions that operate independently of one another. The financial data for the year 2015 reported the following results:
 North  South  Sales $6,000,000$5,000,000 Operating income 1,500,0001,200,000 Taxable income 1,200,000700,000 Investment 14,000,00010,000,000\begin{array} { l r r } & \text { North } & \text { South } \\\text { Sales } & \$ 6,000,000 & \$ 5,000,000 \\\text { Operating income } & 1,500,000 & 1,200,000 \\\text { Taxable income } & 1,200,000 & 700,000 \\\text { Investment } & 14,000,000 & 10,000,000\end{array} The company's desired rate of return is 10%. Income is defined as operating income.

-What are the respective return-on-investment ratios for the North and South Divisions?

A) 10.00% and 15.00%
B) 11.71% and 14.00%
C) 10.71% and 12.00%
D) 12.50% and 15.00%
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58
Answer the following questions using the information below:
Waldorf Company has two sources of funds: long-term debt with a market and book value of $5 million issued at an interest rate of 12%, and equity capital that has a market value of $4 million (book value of $2 million). Waldorf Company has profit centers in the following locations with the following operating incomes, total assets, and current liabilities. The cost of equity capital is 12%, while the tax rate is 25%.
 Operating Income  Assets  Current Liabilities  St. Louis $480,000$2,000,000$100,000 Cedar Rapids $600,000$4,000,000$300,000 Wichita $1,020,000$6,000,000$600,000\begin{array} { | l | r | r | r | } \hline & \text { Operating Income } & \text { Assets } & \text { Current Liabilities } \\\hline \text { St. Louis } & \$ 480,000 & \$ 2,000,000 & \$ 100,000 \\\hline \text { Cedar Rapids } & \$ 600,000 & \$ 4,000,000 & \$ 300,000 \\\hline \text { Wichita } & \$ 1,020,000 & \$ 6,000,000 & \$ 600,000 \\\hline\end{array}

-What is the EVA for St.Louis?

A) $127,870
B) $163,730
C) $196,270
D) $360,000
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59
A company which favors the residual income approach wants managers to ________.

A) concentrate on maximizing an absolute amount of dollars
B) concentrate on maximizing a percentage return
C) maximize the investment turnover ratio
D) maximize return on sales
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60
Answer the following questions using the information below:
Waldorf Company has two sources of funds: long-term debt with a market and book value of $5 million issued at an interest rate of 12%, and equity capital that has a market value of $4 million (book value of $2 million). Waldorf Company has profit centers in the following locations with the following operating incomes, total assets, and current liabilities. The cost of equity capital is 12%, while the tax rate is 25%.
 Operating Income  Assets  Current Liabilities  St. Louis $480,000$2,000,000$100,000 Cedar Rapids $600,000$4,000,000$300,000 Wichita $1,020,000$6,000,000$600,000\begin{array} { | l | r | r | r | } \hline & \text { Operating Income } & \text { Assets } & \text { Current Liabilities } \\\hline \text { St. Louis } & \$ 480,000 & \$ 2,000,000 & \$ 100,000 \\\hline \text { Cedar Rapids } & \$ 600,000 & \$ 4,000,000 & \$ 300,000 \\\hline \text { Wichita } & \$ 1,020,000 & \$ 6,000,000 & \$ 600,000 \\\hline\end{array}

-What is the EVA for Cedar Rapids?

A) $67,790
B) $110,000
C) $117,000
D) $152,500
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61
Return on investment,Residual income,or Economic value added measures are more appropriate than return on sales because they consider only the investment to measure the performance.
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62
In an EVA calculation,the corporate charge for a division's investment is based on a weighted average of the after-tax interest rate on the firm's debt and the cost of the firm's equity.
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63
All other things held constant,increase in assets such as receivables or decrease in operating income results in an increase in return on investment.
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64
Antique Corp uses the investment center concept for the museums that it manages.Selected operating data for three of its museums for 2015 are as follows:
Antique Corp uses the investment center concept for the museums that it manages.Selected operating data for three of its museums for 2015 are as follows:   Required: a.Compute the return on investment for each division. b.Which museum manager is doing best based only on ROI? Why? c.What other factors should be included when evaluating the managers? Required:
a.Compute the return on investment for each division.
b.Which museum manager is doing best based only on ROI? Why?
c.What other factors should be included when evaluating the managers?
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65
Required rate of return multiplied by the investment is the weighted average cost of the investment.
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66
Economic value added,unlike residual income,charges managers for the costs of their investments in long-term assets and working capital.
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67
Historical costs are costs recognized in particular situations that are not usually recognized by accrual accounting procedures.
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68
Reducing the investment base involves decreasing idle cash,managing credit judiciously,determining proper inventory levels,and spending carefully on long-term assets.
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69
Return on sales measures how effectively costs are managed.
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70
The DuPont method recognizes the two basic ingredients in profit making: increasing the income per dollar of revenues and using assets to generate more revenues.
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71
The objective of maximizing return on investment may induce managers of highly profitable divisions to reject projects that from the viewpoint of the overall organization should be accepted
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72
Gas Supply Corporation uses the investment center concept for the gasoline stations that it manages in the city.Consolidated has a 15% required rate of return on investment in order for a branch station to be viable.Select operating data for three of its stations for 2015 are as follows:
Gas Supply Corporation uses the investment center concept for the gasoline stations that it manages in the city.Consolidated has a 15% required rate of return on investment in order for a branch station to be viable.Select operating data for three of its stations for 2015 are as follows:   Required: a.Compute the return on investment for each station. b.Which station manager is doing best based only on ROI? Why? c.Are any of the stations in danger of being closed due to lack of performance? d.What other factors should be included when evaluating the managers? Required:
a.Compute the return on investment for each station.
b.Which station manager is doing best based only on ROI? Why?
c.Are any of the stations in danger of being closed due to lack of performance?
d.What other factors should be included when evaluating the managers?
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73
To evaluate overall aggregate performance,return on investment and residual income measures are more appropriate than return on sales.
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74
A major weakness of comparing two companies using only operating incomes as the basis of comparison is that it ignores the differences in the size of the investment.
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75
Answer the following questions using the information below:
Coldbrook Company has two sources of funds: long-term debt with a market and book value of $15 million issued at an interest rate of 10%, and equity capital that has a market value of $9 million (book value of $5 million). Coldbrook Company has profit centers in the following locations with the following operating incomes, total assets, and current liabilities. The cost of equity capital is 15%, while the tax rate is 30%.
 Operating Income  Assets  Current Liabilities  Bish Bash Falls $815,000$3,750,000$800,000 Brooksville $1,100,000$5,000,000$1,200,000 Stonybrook $2,450,000$9,250,000$3,180,000\begin{array} { | l | r | r | r | } \hline & \text { Operating Income } & \text { Assets } & \text { Current Liabilities } \\\hline \text { Bish Bash Falls } & \$ 815,000 & \$ 3,750,000 & \$ 800,000 \\\hline \text { Brooksville } & \$ 1,100,000 & \$ 5,000,000 & \$ 1,200,000 \\\hline \text { Stonybrook } & \$ 2,450,000 & \$ 9,250,000 & \$ 3,180,000 \\\hline\end{array}

-What is the EVA for Stonybrook?

A) $1,108,000
B) $1,168,700
C) $1,315,063
D) $1,403,063
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76
Moto Corp allows its divisions to operate as autonomous units.The operating data for 2015 follow:
Moto Corp allows its divisions to operate as autonomous units.The operating data for 2015 follow:   Required: a.Compute the investment turnover for each division. b.Compute the return on sales for each division. c.Compute the return on investment for each division. d.Which division manager is doing best? Why? e.What other factors should be included when evaluating the managers? For parts (b)and (c)income is defined as operating income. Required:
a.Compute the investment turnover for each division.
b.Compute the return on sales for each division.
c.Compute the return on investment for each division.
d.Which division manager is doing best? Why?
e.What other factors should be included when evaluating the managers?
For parts (b)and (c)income is defined as operating income.
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77
In an EVA calculation,the appropriate measure of a division's profit would be that division's pre-tax operating income.
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78
Return on investment is an accounting measure of income minus a dollar amount for required return on an accounting measure of investment.
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79
Companies that adopt the EVA concept define investment as total assets employed minus current liabilities.
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80
In an EVA calculation,the measure of the invested capital for a division would be that division's assets minus that division's long-term liabilities.
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