Exam 22: Multinational Performance Measurement and Compensation

Answer the following question(s)using the information below: Carriage Ltd.manufactures baby carriages.The company has two divisions, Wheels and Assembly.Because of different accounting methods and inflation rates, the company is considering multiple evaluation measures.The following information is provided for the year just ended: The company is currently using a 12% required rate of return. -What are Wheels's and Assembly's residual incomes based on book values, respectively?

The most popular approach to incorporating the investment base into a performance measure is

List and describe the steps involved in making decisions on performance measures.

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 Gamma Division's return on investment?

The imputed cost of an investment is the required rate of return times the investment.

In establishing performance measures and compensation policy, the issues are interdependent and the decision maker may proceed through a series of decisions several times before selecting the performance measure(s).

A company has total assets of $500,000, a required rate of return of 10%, and operating income for the year was $200,000.What is the residual income?

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%. -Novella Ltd.reported a return on investment of 16%, an asset turnover of 6, and income of $190,000.On the basis of this information, the company's invested capital was

What disadvantage is there in using ROI and/or RI as performance measures?

Kase Tractor Company allows its divisions to operate as autonomous units.Their results for the current year were as follows: Required: For each division compute the a.return on sales b.return on investment based on total assets employed c.economic value added d.residual income based on net operating income

Use the information below to answer the following question(s).Berger Publishing has two divisions which operate autonomously.Their results for the past year were as follows: The company's desired rate of return is 15%. -What are the respective return on investment ratios for the Toronto and Vancouver divisions?

The absence of good performance measures restricts the owner's ability to motivate managers through

Answer the following question(s)using the information below: Carriage Ltd.manufactures baby carriages.The company has two divisions, Wheels and Assembly.Because of different accounting methods and inflation rates, the company is considering multiple evaluation measures.The following information is provided for the year just ended: The company is currently using a 12% required rate of return. -What are Wheels's and Assembly's return on investment based on current values, respectively?

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 investment turnover?

What the first step in selecting appropriate performance measures?

Jim's Quality Pre-owned Auto Sales Ltd.allows its divisions to operate as autonomous units.Their results for the current year were as follows: Required: For each division compute the a.return on sales b.return on investment based on total assets employed c.economic value added d.residual income based on net operating income

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

The Auto Division of Fran Corporation has $2.5 million in total assets and $200,000 in liabilities, while the Transportation Division has $5 million in total assets and $3 million in liabilities.What are the imputed costs of the Auto division and of the Transportation division, respectively, if the corporation has a required rate of return of 11%?

Coptermagic Company supplies helicopters to corporate clients.Coptermagic has two sources of funds: long term debt with a market and book value of $32 million issued at an interest rate of 10%, and equity capital that has a market value of $18 million and book value of $8 million.The cost of equity capital for Coptermagic is 15%, and its tax rate is 30%.Coptermagic has profit centres in four divisions that operate autonomously.The company's results for the past year are as follows: Required: a.Compute Coptermagic's weighted average cost of capital. b.Compute each division's Economic Value Added. c.Rank the divisions by EVA.

Good performance measures do not change significantly with the manager's performance but change with factors that are beyond the manager's control.