Question 1

During the past year Badger Company had a net income of $175,000.What is the ROI if the investment is $25,000?

Accepted Answer

A) 0.142 
B) 2.500 
C) 5.140 
D) 7.000 
E) 5.450 
A) 0.142 
B) 2.500 
C) 5.140 
D) 7.000 
E) 5.450

Question 2

Last year Reynolds Ltd.reported the following results:
   Required:
a.Using the DuPont method, calculate the company's return on investment for the year just ended.
b.Assuming the company's sales, operating expenses, and assets remain the same as last year, by how much would the gross margin percentage have to increase to achieve a 20% return on investment?
c.Assume the company sets a minimum required return of 13%, what would the residual income be?

Accepted Answer

a.ROI = Income/Sales ∗ Sales/A

Question 3

Answer the following question(s)using the information below:
Coldbrook Company has two sources of funds: long-term debt with a market and book value of $15 million issued at an interest rate of 10%, and equity capital that has a market value of $9 million (book value of $5 million).Coldbrook Company has profit centres 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 30%.  
-What is the   for Bish Bash Falls?

Accepted Answer

A) $338,563 
B) $305,000 
C) $275,500 
D) $255,500 
E) $220,188 
A) $338,563 
B) $305,000 
C) $275,500 
D) $255,500 
E) $220,188

Question 4

Answer the following question(s)using the information below:
Springfield Corporation, whose tax rate is 40%, has two sources of funds: long-term debt with a market value of $8,000,000 and an interest rate of 8%, and equity capital with a market value of $12,000,000 and a cost of equity of 12%.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 (   )for the Gold Division?

Accepted Answer

A) -$283,200 
B) -$82,560 
C) $196,800 
D) $397,440 
E) -$195,200 
A) -$283,200 
B) -$82,560 
C) $196,800 
D) $397,440 
E) -$195,200

Question 5

Use the information below to answer the following question(s).Thacker Company has two regional offices.The information for each is as follows:
  
-The DuPont method of profitability analysis is

Accepted Answer

A) TA - CL/operating income. 
B) ROI × WACC. 
C) [revenue/investment] × [income/revenue]. 
D) ROI/WACC. 
E) ROI × RI. 
A) TA - CL/operating income. 
B) ROI × WACC. 
C) [revenue/investment] × [income/revenue]. 
D) ROI/WACC. 
E) ROI × RI.

Question 6

Broughton Industries Ltd.is a publicly traded company and is organized into divisions.The company currently has a stock option plan for its head office executives only and it now is considering establishing an incentive program for its divisional managers.The proposal is to create a bonus pool based on a predetermined percentage of corporate net income after taxes.Divisional managers will be eligible for money from the bonus pool based on achievement of divisional return on investment (ROI).The calculation of the divisional ROI will be based on divisional net income (including an allocation of head office charges)and investment is defined as total assets.Required:
Evaluate the proposed incentive plan.What changes would you recommend, if any, to the proposal?

Accepted Answer

The proposed bonus plan is cash based.In

Question 7

It is more cost-efficient for owners to bear risk than managers, because managers demand a premium (extra compensation)for bearing risk.

Accepted Answer

A) True 
 B)False

Question 8

Companies are increasingly using nonfinancial measures to evaluate performance.Why? Since these numbers do not come from the company's financial records, why are they used?

Accepted Answer

The correct answer will revolve around t

Question 9

Bob Cellular Phone uses ROI to measure divisional performance.Annual ROI calculations for each division have traditionally employed the ending amount of invested capital along with annual operating income and net revenue.The DuPont method is generally used.The company's Phone Accessories Division had the following results:
Previous Year ROI = ($2,000,000/$20,000,000)× ($20,000,000/$10,000,000)= 0.20
Current Year ROI = ($2,400,000/$25,000,000)× ($25,000,000/$15,000,000)= 0.16
Corporate management was disappointed in the performance of the division for the current year since it had made an additional investment in the division which was budgeted for a 23 percent ROI.Required:
a.Discuss some factors that may have contributed to the decrease in ROI for the current year.
b.Assume total assets employed are 10% less than total assets.What is the effect of using total assets employed when calculating ROI?

Accepted Answer

a.While sales increased by 25 percent, n

Question 10

The only criticism of team-based compensation is that the incentives for individual employees to excel are diminished, harming overall performance.

Accepted Answer

A) True 
 B)False

Question 11

Use the information below to answer the following question(s).The top management at Munchie Company, a manufacturer of computer games, is attempting to recover from a flood, which destroyed some of its accounting records.The main computer system was also severely damaged.The following information was salvaged:
  
-What is the value of the total assets belonging to the Beta Division?

Accepted Answer

A) $4,333,333 
B) $5,952,380 
C) $6,500,000 
D) $7,151,800 
E) $4,654,252 
A) $4,333,333 
B) $5,952,380 
C) $6,500,000 
D) $7,151,800 
E) $4,654,252

Question 12

Use the information below to answer the following question(s).The top management at Groundsource Company, a manufacturer of lawn and garden equipment, is attempting to recover from a flood, which destroyed some of its accounting records.The main computer system was also severely damaged.The following information was salvaged:
  
-What is the value of the total assets belonging to the Tiller Division?

Accepted Answer

A) $10,000,000 
B) $12,000,000 
C) $14,400,000 
D) $15,000,000 
E) $16,000,000 
A) $10,000,000 
B) $12,000,000 
C) $14,400,000 
D) $15,000,000 
E) $16,000,000

Question 13

Moral hazard describes contexts in which, once risk is shared, the individual fails to make as much effort to avoid harm as when risk was not shared.

Accepted Answer

A) True 
 B)False

Question 14

A multinational corporation established a division in Ireland as a subsidiary corporation, with an initial investment in total assets of 13 million €'s, which cost the company $19,240,000 Canadian at the time.The company sent an experienced manager to run the division, and gave her a target of 12% required rate of return, promising a bonus if this was met and/or exceeded.After one year, the subsidiary manager was pleased to report a 15% ROI.You have been able to determine the following data pertaining to the subsidiary:
   Required:
a.Calculate the subsidiary's income in €'s.
b.Calculate the subsidiary's return on investment in Canadian dollars.
c.Calculate the subsidiary's residual income in Canadian dollars.

Accepted Answer

a.income ÷ 13,000,000 €'s = .1

Question 15

Use the information below to answer the following question(s).The top management at Munchie Company, a manufacturer of computer games, is attempting to recover from a flood, which destroyed some of its accounting records.The main computer system was also severely damaged.The following information was salvaged:
  
-What is the value of the total assets belonging to the Alpha Division?

Accepted Answer

A) $4,333,333 
B) $6,000,000 
C) $6,500,000 
D) $7,151,800 
E) $6,434,434 
A) $4,333,333 
B) $6,000,000 
C) $6,500,000 
D) $7,151,800 
E) $6,434,434

Question 16

Which of the following incorporates the amount of investment into the performance measure?

Accepted Answer

A) dividend income 
B) residual income 
C) return on investment 
D) both residual income and return on investment 
E) both dividend income and residual 
A) dividend income 
B) residual income 
C) return on investment 
D) both residual income and return on investment 
E) both dividend income and residual

Question 17

Batman Abstract Company has three divisions that operate autonomously.Their results for the current year were 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.

Accepted Answer

The answer of Batman Abstract Company has three divisions that...

Question 18

Return on investment highlights the benefits that managers can obtain by reducing their investments in current or fixed assets.

Accepted Answer

A) True 
 B)False

Question 19

The following data are available for a manufacturing business started as a new company five years ago when the construction cost index was 115:
   * = "of long-term assets at historical cost"
Required:
Calculate the return on investment and the residual income for year five based on current cost.The company's required rate of return is 12%.

Accepted Answer

Current cost BV = $2,000,000 × 130/115 =

Question 20

Use the information below to answer the following question(s).The top management at Groundsource Company, a manufacturer of lawn and garden equipment, is attempting to recover from a flood, which destroyed some of its accounting records.The main computer system was also severely damaged.The following information was salvaged:
  
-What is the Tractor Division's return on sales?

Accepted Answer

A) 0.10 
B) 0.12 
C) 0.15 
D) 0.20 
E) 0.25 
A) 0.10 
B) 0.12 
C) 0.15 
D) 0.20 
E) 0.25

During the past year Badger Company had a net income of $175,000.What is the ROI if the investment is $25,000?

Use the information below to answer the following question(s).Thacker Company has two regional offices.The information for each is as follows: -The DuPont method of profitability analysis is

It is more cost-efficient for owners to bear risk than managers, because managers demand a premium (extra compensation)for bearing risk.

Companies are increasingly using nonfinancial measures to evaluate performance.Why? Since these numbers do not come from the company's financial records, why are they used?

The only criticism of team-based compensation is that the incentives for individual employees to excel are diminished, harming overall performance.

Moral hazard describes contexts in which, once risk is shared, the individual fails to make as much effort to avoid harm as when risk was not shared.

Which of the following incorporates the amount of investment into the performance measure?

Return on investment highlights the benefits that managers can obtain by reducing their investments in current or fixed assets.

The Accountants Vital Role in Decision Making

An Introduction to Cost Terms and Purposes

Cost-Volume-Profit Analysis

Job Costing

Activity-Based Costing and Management

Master Budget and Responsibility Accounting

Flexible Budgets, Variances, and Management Control: I

Flexible Budgets, Variances, and Management Control: II

Income Effects of Denominator Level on Inventory Valuation

Analysis of Cost Behaviour

Decision Making and Relevant Information

Pricing Decisions, Product Profitability Decisions, and Cost Management

Strategy, Balanced Scorecard, and Profitability Analysis

Period Cost Allocation

Cost Allocation: Joint Products and Byproducts

Revenue and Customer Profitability Analysis

Process Costing

Spoilage, Rework, and Scrap

Inventory Cost Management Strategies

Capital Budgeting: Methods of Investment Analysis

Transfer Pricing and Multinational Management Control Systems

Filters

Exam 22: Multinational Performance Measurement and Compensation

During the past year Badger Company had a net income of $175,000.What is the ROI if the investment is $25,000?

Use the information below to answer the following question(s).Thacker Company has two regional offices.The information for each is as follows: -The DuPont method of profitability analysis is

It is more cost-efficient for owners to bear risk than managers, because managers demand a premium (extra compensation)for bearing risk.

Companies are increasingly using nonfinancial measures to evaluate performance.Why? Since these numbers do not come from the company's financial records, why are they used?

The only criticism of team-based compensation is that the incentives for individual employees to excel are diminished, harming overall performance.

Moral hazard describes contexts in which, once risk is shared, the individual fails to make as much effort to avoid harm as when risk was not shared.

Which of the following incorporates the amount of investment into the performance measure?

Return on investment highlights the benefits that managers can obtain by reducing their investments in current or fixed assets.

The Accountants Vital Role in Decision Making

An Introduction to Cost Terms and Purposes

Cost-Volume-Profit Analysis

Job Costing

Activity-Based Costing and Management

Master Budget and Responsibility Accounting

Flexible Budgets, Variances, and Management Control: I

Flexible Budgets, Variances, and Management Control: II

Income Effects of Denominator Level on Inventory Valuation

Analysis of Cost Behaviour

Decision Making and Relevant Information

Pricing Decisions, Product Profitability Decisions, and Cost Management

Strategy, Balanced Scorecard, and Profitability Analysis

Period Cost Allocation

Cost Allocation: Joint Products and Byproducts

Revenue and Customer Profitability Analysis

Process Costing

Spoilage, Rework, and Scrap

Inventory Cost Management Strategies

Capital Budgeting: Methods of Investment Analysis

Transfer Pricing and Multinational Management Control Systems

Filters