Exam 24: Multinational Performance Measurement and Compensation

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

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

Miller Medical Services provided the following information for it past year's operations in its Hospital Bed Division. What is the Hospital Bed Division's return on sales if income is defined as operating income ?

________ 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.

________ and ________ would be uncontrollable factors that a firm would need to consider when evaluating the return on investment of an international division.

Measures which monitor critical performance variables that help managers track progress toward achieving a company's strategic goals are collectively called diagnostic control systems.

Return on sales is calculated by dividing net income by revenues.

Comparing the performance of divisions of a multinational company operating in different countries is difficult because of the differences in economic, legal, political, social and cultural environments.

Use the information below to answer the following question(s). Brandorf Company has two sources of funds: long term debt with a market and book value of $9 million issued at an interest rate of 10 percent; and, equity capital that has a market value of $6 million (book value of $2 million). The cost of equity capital is 5 percent, while the tax rate is 30 percent. Brandorf Company has profit centres in the following locations with the following data: -What is EVA for St. Johns?

An important consideration in designing compensation arrangements is the tradeoff between creating incentives, and reducing risk.

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?

National Can Company has three divisions, Eastern, Midwestern, and Western. Because of very different accounting methods and inflation rates in different countries it is considering multiple evaluation measures. Information gathered about the divisions for the year just ended follows: The company is currently using a required rate of return of 15 percent. Required: A) Compute the ROI using both book value and current value for all divisions. Round to three decimal places. B) Compute residual income using book value and current value for all divisions. C) Does book value or current value provide the better basis for performance evaluation? Why? Which division is the most successful?

Which of the following performance measures is more likely to promote goal congruence?

Hargrave Products has three divisions which operate autonomously. Their results for 2010 were as follows: The company's desired rate of return is 15 percent. Required: a. Compute each division's ROI. Round to three decimal places. b. Compute each division's residual income.

Deciding if all subunits should have the same required rate of return is an example of

Batman Abstract Company has three divisions that operate autonomously. Their results for 2009 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.

The "four levers" of control are operating profit before taxes, return on investment, residual income, and economic value added.

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 residual incomes for the Toronto and Vancouver divisions?

R & D Storage is a small, but diversified, moving and storage company. In recent years its corporate income has declined to unacceptable levels. To change the direction of the company, the board of directors hired a new chief executive officer. She is currently considering three alternative ways as to how division managers are rewarded for their performance. They are; ROI, RI, and EVA. Required: Evaluate the CEO's plans by comparing the similarities and differences of the three methods.

An art distribution company has three divisions which operate autonomously. Their results for 2010 were as follows: The company's desired rate of return is 20 percent. 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 2011? Why?