Question 1

Return on investment can be calculated by multiplying return on assets by investment turnover.

Accepted Answer

A) True 
 B)False

Question 2

Coldbrook Company has two sources of funds: long-term debt with a market and book value of $17,000,000 issued at an interest rate of 11%, and equity capital that has a market value of $6,000,000 (book value of $5,500,000). 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 35%.
 
What is the EVA® for Stonybrook? (Round intermediary calculations to four decimal places.)

Accepted Answer

A)  $1,184,600 
B)  $1,755,000 
C)  $570,400 
D)  $658,693 
A)  $1,184,600 
B)  $1,755,000 
C)  $570,400 
D)  $658,693

Question 3

Reducing the investment base to improve ROI involves decreasing idle cash, paying down debt, determining proper inventory levels, and spending carefully on long-term assets.

Accepted Answer

A) True 
 B)False

Question 4

An excessive focus on diagnostic control systems and critical performance variables can cause an organization to ignore emerging threats and opportunities.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following best describes an interactive control system?

Accepted Answer

A)  ensures adherence to legal or ethical accounting policies and procedures 
B)  ensures prompt and severe reprimand of unethical conduct, regardless of the benefits that might accrue to the company from unethical action 
C)  ensures that employees' intrinsic motivation, the desire to achieve self-satisfaction for performing well regardless of external rewards such as bonuses or promotion 
D)  ensures frequent face-to-face communications among managers and employees regarding the critical uncertainties 
A)  ensures adherence to legal or ethical accounting policies and procedures 
B)  ensures prompt and severe reprimand of unethical conduct, regardless of the benefits that might accrue to the company from unethical action 
C)  ensures that employees' intrinsic motivation, the desire to achieve self-satisfaction for performing well regardless of external rewards such as bonuses or promotion 
D)  ensures frequent face-to-face communications among managers and employees regarding the critical uncertainties

Question 6

Craylon Corp. is planning the 2018 operating budget. Average operating assets of $1,800,000 will be used during the year and unit selling prices are expected to average $100 each. Variable costs of the division are budgeted at $500,000, while fixed costs are set at $300,000. The company's required rate of return is 18%.
Required:
a.Compute the sales volume necessary to achieve a 20% ROI.
b.The division manager receives a bonus of 50% of residual income. What is his anticipated bonus for 2015, assuming he achieves the 20% ROI from part (a)?

Accepted Answer

a.Target operating income = 0.

Question 7

Which of the following is the required rate of return used in the economic value added (EVA) calculation?

Accepted Answer

A)  The ROI of the division or company being evaluated 
B)  After-tax weighted-average cost of capital 
C)  The residual income/total assets 
D)  The after-tax operating income/(Total assets - current liabilities) 
A)  The ROI of the division or company being evaluated 
B)  After-tax weighted-average cost of capital 
C)  The residual income/total assets 
D)  The after-tax operating income/(Total assets - current liabilities)

Question 8

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

Accepted Answer

A)  16.00% and 11.88% 
B)  10.00% and 7.50% 
C)  11.88% and 16.00% 
D)  7.50% and 10.00% 
A)  16.00% and 11.88% 
B)  10.00% and 7.50% 
C)  11.88% and 16.00% 
D)  7.50% and 10.00%

Question 9

Springfield Corporation, whose tax rate is 30%, has two sources of funds: long-term debt with a market value of $8,400,000 and an interest rate of 8%, and equity capital with a market value of $14,000,000 and a cost of equity of 13%. Springfield has two operating divisions, the Blue division and the Gold division, with the following financial measures for the current year:
 
What is Economic Value Added (EVA®) for the Blue Division? (Round intermediary calculations to four decimal places.)

Accepted Answer

A)  -$86,580 
B)  $86,580 
C)  $404,280 
D)  -$230,550 
A)  -$86,580 
B)  $86,580 
C)  $404,280 
D)  -$230,550

Question 10

Which of the following statements is true?

Accepted Answer

A)  The economic, legal, political, social, and cultural environments differ across countries. 
B)  The import quotas and tariffs remain the same across all countries according to the standards set by United Nations. 
C)  The advances in telecommunications and transportation, the availability of materials and skilled labor does not differ significantly across countries. 
D)  The fixed rate policy is followed across all countries to avoid price fluctuations and inflation. 
A)  The economic, legal, political, social, and cultural environments differ across countries. 
B)  The import quotas and tariffs remain the same across all countries according to the standards set by United Nations. 
C)  The advances in telecommunications and transportation, the availability of materials and skilled labor does not differ significantly across countries. 
D)  The fixed rate policy is followed across all countries to avoid price fluctuations and inflation.

Return on investment can be calculated by multiplying return on assets by investment turnover.

Reducing the investment base to improve ROI involves decreasing idle cash, paying down debt, determining proper inventory levels, and spending carefully on long-term assets.

An excessive focus on diagnostic control systems and critical performance variables can cause an organization to ignore emerging threats and opportunities.

Which of the following best describes an interactive control system?

Which of the following is the required rate of return used in the economic value added (EVA) calculation?

Which of the following statements is true?

The Manager and Management Accounting

An Introduction to Cost Terms and Purposes

Cost-Volume-Profit Analysis

Job Costing

Activity-Based Costing and Activity-Based Management

Master Budget and Responsibility Accounting

Flexible Budgets, Direct-Cost Variances, and Management Control

Flexible Budgets, Overhead Cost Variances, and Management Control

Inventory Costing and Capacity Analysis

Determining How Costs Behave

Decision Making and Relevant Information

Strategy, Balanced Scorecard, and Strategic Profitability Analysis

Pricing Decisions and Cost Management

Cost Allocation, Customer-Profitability Analysis, and Sales-Variance Analysis

Allocation of Support-Department Costs, Common Costs, and Revenues

Cost Allocation: Joint Products and Byproducts

Process Costing

Spoilage, Rework, and Scrap

Balanced Scorecard: Quality and Time

Inventory Management, Just-in-Time, and Simplified Costing Methods

Capital Budgeting and Cost Analysis

Management Control Systems, Transfer Pricing, and Multinational Considerations

Filters

Exam 23: Performance Measurement, Compensation, and Multinational Considerations

Return on investment can be calculated by multiplying return on assets by investment turnover.

Reducing the investment base to improve ROI involves decreasing idle cash, paying down debt, determining proper inventory levels, and spending carefully on long-term assets.

An excessive focus on diagnostic control systems and critical performance variables can cause an organization to ignore emerging threats and opportunities.

Which of the following best describes an interactive control system?

Which of the following is the required rate of return used in the economic value added (EVA) calculation?

Which of the following statements is true?

The Manager and Management Accounting

An Introduction to Cost Terms and Purposes

Cost-Volume-Profit Analysis

Job Costing

Activity-Based Costing and Activity-Based Management

Master Budget and Responsibility Accounting

Flexible Budgets, Direct-Cost Variances, and Management Control

Flexible Budgets, Overhead Cost Variances, and Management Control

Inventory Costing and Capacity Analysis

Determining How Costs Behave

Decision Making and Relevant Information

Strategy, Balanced Scorecard, and Strategic Profitability Analysis

Pricing Decisions and Cost Management

Cost Allocation, Customer-Profitability Analysis, and Sales-Variance Analysis

Allocation of Support-Department Costs, Common Costs, and Revenues

Cost Allocation: Joint Products and Byproducts

Process Costing

Spoilage, Rework, and Scrap

Balanced Scorecard: Quality and Time

Inventory Management, Just-in-Time, and Simplified Costing Methods

Capital Budgeting and Cost Analysis

Management Control Systems, Transfer Pricing, and Multinational Considerations

Filters