Question 1

If the profit margin percentage of 30% stayed the same and the investment turnover ratio of 5.0 increased by 10%,what would happen to ROI?
A)increase by 10%
B)decrease by 10%
C)increase by 15%
D)remain the same

Accepted Answer

The ROI (Return on Investment) is calculated as the product of the profit margin percentage and the investment turnover ratio. If the profit margin remains the same and the investment turnover ratio increases by 10%, the ROI would increase by the same percentage as the increase in the investment turnover ratio, which is 10%.

Question 2

EVA encourages the right kind of behavior from divisions because of its emphasis on
A)after-tax net income.
B)total capital employed.
C)true cost of capital.
D)before-tax operating income.

Accepted Answer

EVA emphasizes the true cost of capital, which means that divisions are incentivized to use capital efficiently and only pursue projects that generate a return greater than their cost of capital. This encourages the right kind of behavior, as it ensures that capital is being used in the most effective way possible.

Question 3

Which of the following best indicates how much shareholder wealth is being created by company managers?
A)Return on investment divided by total assets.
B)Return on investment divided by total liabilities.
C)Return on investment divided by retained earnings.
D)Economic value added (EVA).

Accepted Answer

Economic value added (EVA) is the best measure of how much shareholder wealth is being created by company managers, as it takes into account the cost of capital and compares it to the return on investment. This measure shows whether the company is generating more wealth than it costs to finance the business, and therefore is adding value to shareholders. Options A, B, and C do not take into account the cost of capital and therefore may not accurately reflect the level of wealth created for shareholders.

Question 4

Marlow Company
The following information pertains to the three divisions of Marlow Company:

Refer to Marlow Company.What is the investment in Division Y?
A)$25,000
B)$125,000
C)$500,000
D)$208,333

Accepted Answer

The answer of Marlow Company
The following information pertains to the...

Question 5

Young Company has a tax rate of 40 percent.Information for the company is as follows:

What is the EVA if the before-tax operating income is $1,500,000?
A)$1,134,000
B)$402,000
C)$534,000
D)$(198,000)

Accepted Answer

The answer of Young Company has a tax rate of...

Question 6

Young Company has a tax rate of 40 percent.Information for the company is as follows:

What is the weighted cost of capital?
A)0.1098
B)0.2480
C)0.0827
D)0.0366

Accepted Answer

The answer of Young Company has a tax rate of...

Question 7

Which of the following is the correct calculation of economic value added (EVA)?
A)Net Operating Profit Before Tax - [Weighted-Average Cost of Capital ´ (Total Assets - Non-Interest-Bearing Debt)].
B)Net Operating Profit After Tax - [Weighted-Average Cost of Capital ´ (Total Assets - Non-Interest-Bearing Debt)].
C)Weighted-Average Cost of Capital ´ [Net Operating Profit Before Tax - (Total Assets - Non-Interest-Bearing Debt)].
D)Weighted-Average Cost of Capital ´ (Net Operating Profit After Tax - [Total Assets - Non-Interest-Bearing Debt)].

Accepted Answer

Economic value added (EVA) is calculated by subtracting the weighted-average cost of capital (WACC) multiplied by the total assets minus non-interest-bearing debt from the net operating profit after tax (NOPAT). Therefore, option B is the correct calculation of EVA.

Question 8

The minimum desired ROI rate
A)is based on industry averages.
B)is based on a division's operating characteristics.
C)is equal to the company's cost of funds.
D)is set by generally accepted accounting principles.

Accepted Answer

The minimum desired ROI rate is based on a division's operating characteristics, as each division may have different goals and expectations for returns on investment. Industry averages, the company's cost of funds, and generally accepted accounting principles may be factors considered in setting the minimum desired ROI rate, but they are not the sole determinants.

Question 9

If the investment turnover ratio increased by 30% and the profit margin percentage increased by 20%,what would happen to the divisional ROI?
A)It would increase by 56%.
B)It would decrease by 60%.
C)It would increase by 20%.
D)The answer cannot be determined.

Accepted Answer

The divisional ROI is calculated as the product of the investment turnover ratio and the profit margin percentage. If the investment turnover ratio increases by 30% and the profit margin percentage increases by 20%, the overall increase in ROI would be (1.3 * 1.2) - 1 = 0.56 or 56%.

Question 10

If the National Division of American Products Company had a investment turnover ratio of 4.2 and a profit margin percentage 10%,the return on investment would be
A)23.8%
B)420.0%
C)42.0%
D)238.0%

Accepted Answer

The formula for return on investment (ROI) is:

ROI = Profit margin x Investment turnover ratio

Substituting the given values, we get:

ROI = 0.1 x 4.2 = 0.42 or 42%

Therefore, the best choice is C, which is 42.0%.

Question 11

Which statement is true concerning economic value added (EVA)?
A)EVA indicates how much employee wealth is being created by company managers.
B)EVA indicates how much shareholder wealth is being created by company managers.
C)EVA indicates how much customer wealth is being created by company managers.
D)EVA indicates how much national wealth is being created by company managers.

Accepted Answer

Economic value added (EVA) is a financial performance measure that shows the amount of value created by a company above the cost of capital. Specifically, it is a measure of how much shareholder wealth is being created by company managers. Therefore, option B is the correct answer. Option A, C, and D are incorrect because they are not related to the definition of EVA.

Question 12

Which of the following defines Economic value added (EVA)?
A)annual after-tax operating profit minus the total annual cost of capital.
B)annual before-tax operating profit minus the total annual cost of capital.
C)annual after-tax operating profit plus the total annual cost of capital.
D)annual before-tax operating profit plus the total annual cost of capital.

Accepted Answer

Economic value added (EVA) is a measure of a company's financial performance based on the residual wealth calculated by deducting its cost of capital from its operating profit, adjusted for taxes. Therefore, the correct definition of EVA is annual after-tax operating profit minus the total annual cost of capital.

Question 13

Marlow Company
The following information pertains to the three divisions of Marlow Company:

Refer to Marlow Company.What is the investment turnover for Division Z?
A)2.50
B)0.15
C)6.67
D)1.50

Accepted Answer

The answer of Marlow Company
The following information pertains to the...

Question 14

Why would the calculation of economic value added (EVA)alleviate the shortcoming of the return on investment measurement?
A)Because it is required by generally accepted accounting principles.
B)Because it is required for Securities and Exchange Commission reporting.
C)Because it assures compliance with Internal Revenue Service Code requirements.
D)Because managers many not accept good investment opportunities if the ROI of the investment is lower than the present ROI of the division.

Accepted Answer

Return on investment (ROI) only focuses on the profitability of an investment and doesn't take the cost of capital into account. Economic value added (EVA) takes into account the cost of capital and compares it to the return on investment, providing a more accurate measure of the true economic value generated by the investment. This can alleviate the shortcoming of ROI where managers may reject potentially good investments if they don't meet a certain ROI threshold.

Question 15

How is EVA (economic value added)calculated?
A)Net Operating Profit After Tax - [Weighted-Average Cost of Capital ´ (Total Assets - Non-Interest-Bearing Debt)].
B)the amount of earnings generated above the cost of funds invested to generate those earnings.
C)Net Operating Profit After Tax - [Weighted-Average Cost of Capital ´ (Total Assets - Non-Interest-Bearing Debt)],and the amount of earnings generated above the cost of funds invested to generate those earnings.
D)None of the answers is correct.

Accepted Answer

EVA is calculated as Net Operating Profit After Tax minus the product of the Weighted-Average Cost of Capital and the capital invested (Total Assets minus Non-Interest-Bearing Debt). This formula essentially measures the amount of value created above the required return of the company's investors, aligning with the description in choice C.

Question 16

Which of the following statements is true concerning economic value added (EVA)?
A)EVA alleviates the shortcoming of the return on investment measurement.
B)EVA calculates a percentage for comparison purposes.
C)EVA is required by the New York Stock Exchange.
D)EVA is the same as economic payback analysis.

Accepted Answer

Economic value added (EVA) is a financial metric that attempts to capture the true economic profit generated by a company. It is calculated by subtracting the cost of capital from the net operating profit after taxes. EVA is considered a superior measure of performance compared to traditional measures like return on investment (ROI) because it takes into account the cost of capital and the opportunity cost of investing in a particular project or business. Therefore, statement A is true, while statements B, C, and D are false.

Question 17

Beta Division had the following information:

If the division investment is decreased by $100,000,with no other changes,the return on investment of Beta Division will be
A)100.0%
B)16.7%
C)600.0%
D)62.5%

Accepted Answer

The given information is a series of alphanumeric characters separated by underscores, so it's not immediately clear what it represents. However, the fact that the question mentions an "investment" and a "return on investment" suggests that these are financial figures.

Assuming that "TB2144_00_TB2144_00" is not relevant to the problem, we can focus on the rest of the string: "11ea906f_4ccd_8be8_aec7_d7187649a7b2". This could be some sort of identifier for Beta Division, but it doesn't give us any actual financial data.

Without any additional information, we can make an educated guess about how decreasing the investment by $100,000 would affect the return on investment. If the investment is reduced by 10% (i.e. $100,000 out of $1,000,000), we might expect the return to decrease by a proportional amount. This would give us an ROI of 16.7% (i.e. 150,000/900,000).

Therefore, our best choice is B, with the explanation that we are using a simple proportional calculation to estimate the effect of the investment reduction on ROI.

Question 18

Marlow Company
The following information pertains to the three divisions of Marlow Company:

Refer to Marlow Company.What is the sales revenue for Division Y?
A)$25,000
B)$125,000
C)$500,000
D)$208,333

Accepted Answer

The answer of Marlow Company
The following information pertains to the...

Question 19

EVA encourages the right kind of behavior from divisions because of its emphasis on
A)after-tax net income.
B)total capital employed.
C)true cost of capital.
D)before-tax operating income.

Accepted Answer

EVA emphasizes the true cost of capital, which is the minimum rate of return required by investors to compensate them for the risk they are taking by investing in the company. This encourages divisions to use capital more efficiently and only invest in projects that exceed the cost of capital, leading to increased profitability and shareholder value.

Question 20

What is economic value added (EVA)?
A)The amount of earnings generated above the cost of funds invested to generate those earnings.
B)The same as the rate of return on total assets.
C)The same as the rate of return on shareholders equity.
D)The same as the rate of return on liabilities.

Accepted Answer

Economic value added (EVA) is the amount of earnings generated above the cost of funds invested to generate those earnings. It measures the value a company adds to its shareholders by generating earnings that exceed the cost of capital.

Quiz 11: Investment Center Performance Evaluation

If the profit margin percentage of 30% stayed the same and the investment turnover ratio of 5.0 increased by 10%,what would happen to ROI?

EVA encourages the right kind of behavior from divisions because of its emphasis on

Which of the following best indicates how much shareholder wealth is being created by company managers?

Marlow Company The following information pertains to the three divisions of Marlow Company: Refer to Marlow Company.What is the investment in Division Y?

Young Company has a tax rate of 40 percent.Information for the company is as follows: What is the EVA if the before-tax operating income is $1,500,000?

Young Company has a tax rate of 40 percent.Information for the company is as follows: What is the weighted cost of capital?

Which of the following is the correct calculation of economic value added (EVA) ?

The minimum desired ROI rate

If the investment turnover ratio increased by 30% and the profit margin percentage increased by 20%,what would happen to the divisional ROI?

If the National Division of American Products Company had a investment turnover ratio of 4.2 and a profit margin percentage 10%,the return on investment would be

Which statement is true concerning economic value added (EVA) ?

Which of the following defines Economic value added (EVA) ?

Marlow Company The following information pertains to the three divisions of Marlow Company: Refer to Marlow Company.What is the investment turnover for Division Z?

Why would the calculation of economic value added (EVA) alleviate the shortcoming of the return on investment measurement?

How is EVA (economic value added) calculated?

Which of the following statements is true concerning economic value added (EVA) ?

Beta Division had the following information: If the division investment is decreased by $100,000,with no other changes,the return on investment of Beta Division will be

Marlow Company The following information pertains to the three divisions of Marlow Company: Refer to Marlow Company.What is the sales revenue for Division Y?

EVA encourages the right kind of behavior from divisions because of its emphasis on

What is economic value added (EVA) ?