Exam 11: Setting Performance Expectations in Large, Complex Organizations

Among its other assets, your company owns a note receivable from a customer. The terms of the note entitle your company to receive a $50,000 cash payment at the end of each of the next three years. Assuming a market rate of interest of 8%, what is the approximate economic value of your company's note receivable?

One of the significant costs of decentralization is:

Of the various types of responsibility centers managers, only investment center managers are responsible for allocating financial capital among competing projects.

What set of circumstances necessitate the establishment and use of transfer prices?

For several years, Northern Division of Marino Company has maintained a positive residual income. Northern is currently considering investing in a new project that will lower the division's overall return on investment (ROI) but increase its residual income. What is the relationship between the expected rate of return on the new project, the firm's cost of capital, and the division's current ROI?