Exam 22: Multinational Performance Measurement and Compensation

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

Which of the following statements is TRUE?

Holmes Electronics Ltd.has three divisions: Resistors,Semiconductors and Transistors,each located in a different geographic region.Data for its most recent year are presented below: The company is currently using a required rate of return of 16 percent. Required: a.Compute the ROI using both book value and current value for all divisions.Round to four 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?

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

Answer the following question(s)using the information below: 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 asset turnover?

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?

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

Use the information below to answer the following question(s). Ruth Cleaning Products manufactures home cleaning products.The company has two divisions,Bleach and Bleach-2.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 required rate of return of 15 percent. -What are Bleach's and Bleach-2's return on investment based on current values?

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

A control system that attempts to focus an organization's attention and learning on key strategic issues is known as a(n)

Which of the following approaches include investment in the performance measure?

Which type of compensation is most prevalent when a satisfactory performance measure cannot be designed?

Current cost is defined as the cost of purchasing an asset today identical to the one currently held. Required: Discuss why this is a useful concept and explain some difficulties in its use.

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?

Team incentives encourage cooperation by

The first step in designing accounting based performance measures is to choose performance measures that align with top management's financial goals.

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?

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.

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

Randall Ltd.reported the following results for its two divisions: Required: a.Using the DuPont method,calculate the return on investment for each division for each year. b.Comment on the performance of each division.