Exam 23: Performance Measurement, Compensation, and Multinational Considerations

To convert the operating income for an overseas branch into US dollars, the historical rate of exchange is used for its conversion into US dollars.

Using residual income as a measure of performance rather than return on investment promotes goal congruence because residual income ________.

Current cost return on investment is a better measure of the current economic returns from an investment than historical cost return on investment.

Total assets employed includes all assets, regardless of their intended purpose.

A report that measures financial and nonfinancial performance measures for various organization units in a single report is called a(n) ________.

Springfield Corporation, whose tax rate is 34%, 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 $16,000,000 and a cost of equity of 14%. What is Springfield's weighted average cost of capital (WACC)?

Zenith Corporation's net income is $80,000. What is the return on investment if the amount of the investment is $510,000?

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.

Some companies present financial and nonfinancial performance measures for various organization units in a single report called the balanced scorecard.

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: What is the Tiller Division's investment turnover?

Batman Abstract Company has three divisions that operate autonomously. Their results for 2015 are as follows: The company's desired rate of return is 20%. Required: a.Compute each division's ROI. b.Compute each division's residual income. c.Rank each division by both ROI and residual income. d.Which division had the best performance in 2015? Why?

Megatron Corp. earned net income of 16,000 Euros in its overseas branch at France. Its headquarters is located in the U.S. The rate of conversion during set up was $1.309 / Euro. What is the value of its income in its home currency if the rate is $1.508 / Euro at the end of a financial year and the average rate being $1.410 / Euro?

Care Inc., has two divisions that operate independently of one another. The financial data for the year 2015 reported the following results: 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?

Aaron Corp's net income is $25,000. What is the amount of the investment if the return on investment is 30%?

Waldorf Company has two sources of funds: long-term debt with a market and book value of $5,200,000 issued at an interest rate of 13%, and equity capital that has a market value of $4,200,000 (book value of $2,400,000). 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 13%, while the tax rate is 35%. What is the EVA® for St. Louis? (Round intermediary calculations to four decimal places.)

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: What were the sales for the Tiller Division? (Round the final answer to the nearest whole dollar.)

Stock options give executives the right to buy company stock at a specified price, called the exercise price, within a specified period.

The return on investment is usually considered the most popular approach to measure performance because ________.

Historical-cost-based accounting measures are usually inadequate for evaluating economic returns on new investments and, in some cases, create disincentives for expansion.