Exam 23: Performance Evaluation and the Balanced Scorecard

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Waddington Corporation currently has a return on investment of 12%. The Madrid division is reporting residual income of $1,000,000 and a 14% return on investment. The Madrid division is contemplating an investment opportunity which has an 11% return on investment and a positive residual income. Should Madrid division's management make the investment if goal congruence is important to the Waddington Corporation?

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Which of the following will not change a company's return on investment?

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Which of the following does not accurately describe the balanced scorecard approach?

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Which of the following transactions will result in an increase in economic value added?

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Which of the following is not taken into consideration when calculating residual income?

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Return on investment is calculated by:

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Selling property, plant, and equipment at a loss will result in an increase in return on investment.

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Which of the following is not taken into consideration when calculating return on investment?

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Which of the following is irrelevant with respect to calculating economic value added?

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The management of Mullen Division has provided the following information: Operating assets: $600,000 Operating income: $90,000 Sales: $300,000 Management is considering investing in an additional project costing $60,000; it is estimated that the project will create operating income of $7,200. Mullen's minimum desired rate of return is 10%. Should Mullen's management invest in the project if management is evaluated using residual income?

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The management of Mullen Division has provided the following information: Total assets: $600,000 Operating income: $90,000 Sales: $300,000 Management is considering investing in an additional project costing $60,000; it is estimated that the project will create operating income of $7,200. Mullen's minimum acceptable rate of return is 10%. How much is Mullen's overall residual income if the investment is made?

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Assume division 1 of the XYZ Company had the following results last year (in thousands). Management's required rate of return is 8% and the weighted average cost of capital is 6%. Its effective tax rate is 30%. Sales \ 5,000,000 Operating income \ 1,000,000 Total assets \ 10,000,000 Current liabilities \ 500,000 What is the division's capital turnover?

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One disadvantage of the economic value added approach is its short-run focus which can lead to a lack of long-term goal congruence.

(True/False)
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The management of Mullen Division has provided the following information: Total assets: $600,000 Operating income: $90,000 Sales: $300,000 Management is considering investing in an additional project costing $60,000; it is estimated that the project will create operating income of $7,200. Mullen's minimum acceptable rate of return is 10%. Which of the following statements is incorrect?

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Which of the following will not result in an increase in both return on investment and residual Income?

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Assume the Apple division of the Gala Company had the following results last year (in thousands). Managements required rate of return is 10% and the weighted average cost of capital is 8%. Its effective tax rate is 30%. Sales \ 3,000,000 Operating income \ 500,000 Total assets \ 4,500,000 Current liabilities \ 300,000 What is Apple division's profit margin?

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A decrease in the income tax rate will:

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Which of the following statements regarding the weighted average cost of capital is incorrect?

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Hancock Corporation has a capital turnover of 2, sales of $500,000, and a return on investment of 4%. What was Hancock's operating income??

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Norwood Company has a return on investment of 10%, operating income of $200,000, and a capital turnover of 4.0. How much were Norwood's total assets?

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