Deck 20: Management Compensation, Business Analysis, and Business Valuation

Question 1

The balanced scorecard critical success factors (CSFs)provide strong motivation in bonus compensation plans if the non-controllable factors are:

A)Emphasized.
B)Separated.
C)Recognized.
D)Excluded.
E)Controlled.

Answer 1

D

Question 2

Any system of compensation:

A)May encourage unethical behavior.
B)Must be approved by the appropriate regulatory authority.
C)Should be designed by top management.
D)Must be approved by the auditor.

Answer 2

A

Question 3

Market value of equity is an objective measure which clearly shows what:

A)The firm's financial statements show the firm's value to be.
B)Investors think is the firm value.
C)Stock analysts calculate as the firm's value.
D)Is the sales value of the firm.
E)Is the liquidation value of the firm.

Answer 3

B

Question 4

A bonus usually differs from a salary in terms of:

A)Amount and timing.
B)Base,timing,and financial statement effect.
C)Tax implications.
D)Motivation effects.
E)Base,pool,and payment terms.

Question 5

Bonus plans should be tied to variable cost income which is not affected by inventory level changes,rather than the conventional:

A)Tax-based net income.
B)Marginal cost income.
C)Full cost income.
D)Operating income.

Question 6

Due in part to the failure of many banks in 2008,executive compensation is getting increased oversight by:

A)Audit committees of corporate boards
B)Top management
C)Compensation committees of corporate boards
D)Banking regulators and corporate compensation committees
E)Banking regulators such as the SEC

Question 7

The receivables turnover ratio is a measure of:

A)Asset value.
B)Leverage.
C)Sales performance.
D)Profitability.
E)Liquidity.

Question 8

Risk aversion by managers should be recognized when revising compensation plans because:

A)Compensation mix (salary,bonus)can influence a manager's risk aversion.
B)Most companies want risk averse managers.
C)Most companies want risk taking managers.
D)It costs less to pay risk averse managers.

Question 9

Bases for management bonus compensation often include:

A)Stock price performance.
B)Percentage of salary.
C)Achievement of break-even sales.
D)Percentage of firm-wide net income.

Question 10

As a firm's strategy changes to respond to different stages of a product's life cycle,compensation:

A)Can be affected.
B)Is affected,but only to a very limited extent.
C)Should change in response to the new strategy.
D)Should increase.
E)Should decrease.

Question 11

When strategic performance measures or critical success factors are used to determine bonus compensation,the bonus will usually depend either on the amount of improvement in the measure or on:

A)Maintaining the current level.
B)Achieving a predetermined goal.
C)Quality of work completed.
D)Intensity of effort expended.

Question 12

In developing compensation plans,the management accountant works to achieve fairness by making the plan:

A)Precise,comprehensive and directive.
B)Simple,clear and consistent.
C)Attractive.
D)Rewarding.
E)Selective.

Question 13

The objectives of management compensation,when compared to the objectives used to develop performance measurement systems,are:

A)More numerous.
B)Less specific.
C)Consistent in content.
D)Significantly broader in scope.
E)More specific.

Question 14

The stock option form of bonus payments to managers usually:

A)Motivates well even in extended market downturns.
B)Can lose some motivation because of the delay in reward.
C)Focuses on the short-term.
D)Is not consistent with shareholder interests.
E)Has less risk than other types of bonus payment plans.

Question 15

Generally,the current and deferred types of bonus payment options currently in use tend to focus the manager's attention on short-term performance measures,most commonly:

A)Division profit.
B)After tax corporate profit.
C)Cash flow.
D)Growth in firm value.
E)Stock price.

Question 16

The ideal compensation plan would make all company contributions to the plan immediately tax-deductible and all tax consequences for managers:

A)Insignificant.
B)Deferred or avoidable.
C)Limited,but current.
D)Limited,but pre-paid.

Question 17

If fairness only is considered,unit managers prefer:

A)Not to be evaluated.
B)A subjective measure.
C)A single,objective measure.
D)A firm-wide pool over a unit-based pool.
E)A unit-based pool over a firm-wide pool.

Question 18

In management compensation,the use of the balanced scorecard achieves:

A)Fairness.
B)Alignment of manager's incentives and the organization's strategy.
C)The desired ethical environment.
D)Revenue generation and cost control.
E)A specific non-financial measurement.

Question 19

Of the three basic forms of management compensation (salary,bonus,benefits),the fastest growing part of total compensation is:

A)Salary.
B)Bonus.
C)Benefits.
D)Salary and bonus.

Question 20

The balanced scorecard evaluation of the firm is an especially strong financial tool because of its:

A)Use of qualitative measures.
B)Use of quantitative measures.
C)Simplicity in use.
D)Ability to predict change.
E)Use of multiple critical success factors (CSFs).

Question 21

Jackson Supply Company has a 2 to 1 current ratio.This ratio would increase to more than 2 to 1 if the company:

A)Purchased a marketable security for cash.
B)Wrote off an uncollectible receivable.
C)Sold merchandise on account that earned a normal gross margin.
D)Purchased inventory on account.

Question 22

Which one of the following forms of compensation is a based upon the achievement of performance goals for current the period?

A)Perk.
B)Stock option.
C)Performance shares.
D)Bonus.
E)Salary.

Question 23

Which one of the following items is not a measure of a company's liquidity?

A)Accounts receivable turnover.
B)Return on equity.
C)Quick ratio.
D)Cash flow ratio.
E)Day's sales in inventory.

Question 24

In service firms,improvement in long term profitability is best measured by all the following except:

A)Staff utilization.
B)Net revenues.
C)Collections of customer accounts.
D)Materials usage.

Question 25

A current bonus consists of:

A)Cash only.
B)Stock only.
C)Cash and/or stock.
D)Membership in a fitness club.

Question 26

Which one of the following computes value based on annual earnings?

A)Discounted cash flow method.
B)Liquidity method.
C)Multiples-based method.
D)Profitability method.
E)Market value method.

Question 27

Analysts prefer the following three valuation methods over all others:

A)EVA,cash flow multiplier and sales multiplier
B)Enterprise value,discounted cash flow,and sales multiple
C)Sales multiple,earnings multiple,and discounted cash flow
D)EVA,return on equity and discounted cash flow
E)Enterprise value,earnings multiple,and sales multiple

Question 28

Each one of the following is a method for directly measuring the value of a firm's equity except:

A)The discounted cash flow method.
B)Market value.
C)Sales multiple.
D)Earnings-based valuation.
E)Enterprise value.

Question 29

Best Brand Inc.(BBI)manufactures household goods in the United States.The company made two acquisitions in previous years to diversify its product lines.In 2005,HPI acquired cosmetics and consumer electronics companies.BBI is now,in 2010,comprised of three divisions: cosmetics,household,and consumer electronics.The following information (in thousands of dollars)presents operating revenues,operating income,and invested assets of the company over the last three years:
The following table shows the number of executives covered by the current compensation package of HPI:
The current compensation package is an annual bonus award.The senior executives share in the bonus pool.The pool is calculated as 20% of the annual residual income of the company.The residual income is defined as operating income minus a cost of capital charge of 15% of invested assets.Round all calculations to two significant digits.The total amount of the bonus pool for 2008 is:

A)$134,000.
B)$218,000.
C)$141,000.
D)$174,000.
E)$205,000.

Question 30

Which one of the following refers to the firm's ability to pay its current operating expenses and maturing debt?

A)Discounted cash flow.
B)Liquidity.
C)Earnings base.
D)Profitability.
E)Purchasing power.

Question 31

A method for determining a bonus based upon the performance of the firm is a(n):

A)Segment-based pool.
B)Unit-based pool.
C)Firm-based pool.
D)Activity-based pool.
E)Volume-based pool.

Question 32

A deferred bonus consists of:

A)Cash only.
B)Stock only.
C)Cash and/or stock.
D)Membership in a fitness club.

Question 33

Since it is based on cash flows,the discounted cash flow (DCF)method of valuation has the added advantage that it is not subject to the bias of different:

A)Discount rates.
B)Internal rates of return.
C)Monetary systems.
D)Accounting policies for determining total assets and net income.

Question 34

The profit multiplier is used to measure:

A)Efficiency.
B)Effectiveness.
C)Net revenue.
D)Collectability.
E)Accountability.

Question 35

Which one of the following develops the value of the firm as the discounted present value of the firm's net free cash flows?

A)Discounted cash flow method.
B)Liquidity method.
C)Multiples-based method.
D)Profitability method.
E)Purchasing power method.

Question 36

All of the following are listed as common payment options for bonus compensation plans except:

A)Performance shares.
B)Current bonus.
C)Deferred bonus.
D)Preferred bonus.
E)Stock options.

Question 37

Benefits include all of the following except:

A)Travel.
B)Life insurance.
C)Medical benefits.
D)Membership in a fitness club.
E)Performance shares.

Question 38

The multiplier used in an earnings-based method of valuation of a firm is often estimated from the price-to-earnings ratios of the stocks of comparable:

A)Taxable entities.
B)Industries.
C)Firms.
D)For-profit firms.
E)Publicly-held firms.

Question 39

A method for determining a bonus based upon the performance of the unit is a(n):

A)Segment-based pool.
B)Unit-based pool.
C)Firm-based pool.
D)Activity-based pool.
E)Function-based pool.

Question 40

Which one of the following forms of compensation includes special services and benefits for the employee?

A)Perk.
B)Stock option.
C)Performance shares.
D)Bonus.
E)Salary.

Question 41

EVA is calculated as:

A)EVA Net Income - (Cost of Capital x EVA Invested Capital).
B)Total Net Income - (Cost of Capital x Invested Capital).
C)Gross Income - Cost of Capital.
D)Total Net Income - EVA Net Income.
E)Accounting earnings adjusted for EVA.

Question 42

Salary is:

A)A fixed payment that includes a bonus.
B)A fixed payment that includes benefits.
C)A benefit that includes a bonus.
D)A fixed payment.

Question 43

Which one of the following has been the most common payment option for bonus compensation in recent years?

A)Vacation time.
B)Stock options.
C)Increased benefits.
D)Salary increase.

Question 44

Methods for directly valuing a firm include:

A)A
B)B
C)C
D)D
E)E

Question 45

An increase in the market price of a company's common stock will immediately affect its:

A)Stock return.
B)Debt to equity ratio.
C)Earnings per share.
D)Economic value added.
E)Return on common stockholders' equity.

Question 46

Which of the following is a liquidity ratio?

A)Gross margin ratio.
B)Return on Assets ratio.
C)Quick ratio.
D)Earnings per share.

Question 47

EVA is the acronym for:

A)Extra Value Assets.
B)Economic Volume Analysis.
C)Efficiency Volume Analysis.
D)Economic Value Added.

Question 48

Firms typically provide benefits (perks)to employees to enhance motivation.Which of the following would not be an example of a perk?

A)Company car.
B)Country club membership.
C)Stock options.
D)Executive life insurance.

Question 49

Best Brand Inc.(BBI)manufactures household goods in the United States.The company made two acquisitions in previous years to diversify its product lines.In 2005,HPI acquired cosmetics and consumer electronics companies.BBI is now,in 2010,comprised of three divisions: cosmetics,household,and consumer electronics.The following information (in thousands of dollars)presents operating revenues,operating income,and invested assets of the company over the last three years:
The following table shows the number of executives covered by the current compensation package of HPI:
The current compensation package is an annual bonus award.The senior executives share in the bonus pool.The pool is calculated as 20% of the annual residual income of the company.The residual income is defined as operating income minus a cost of capital charge of 15% of invested assets.Round all calculations to two significant digits.The total amount of the bonus pool for 2010 is:

A)$134,000.
B)$218,000.
C)$141,000.
D)$174,000.
E)$205,000.

Question 50

Best Brand Inc.(BBI)manufactures household goods in the United States.The company made two acquisitions in previous years to diversify its product lines.In 2005,HPI acquired cosmetics and consumer electronics companies.BBI is now,in 2010,comprised of three divisions: cosmetics,household,and consumer electronics.The following information (in thousands of dollars)presents operating revenues,operating income,and invested assets of the company over the last three years:
The following table shows the number of executives covered by the current compensation package of HPI:
The current compensation package is an annual bonus award.The senior executives share in the bonus pool.The pool is calculated as 20% of the annual residual income of the company.The residual income is defined as operating income minus a cost of capital charge of 15% of invested assets.Round all calculations to two significant digits.Asset turnover in the electronics division in 2010 is (rounded):

A)1.82
B)2.02
C).733
D)2.31
Below

Question 51

Best Brand Inc.(BBI)manufactures household goods in the United States.The company made two acquisitions in previous years to diversify its product lines.In 2005,HPI acquired cosmetics and consumer electronics companies.BBI is now,in 2010,comprised of three divisions: cosmetics,household,and consumer electronics.The following information (in thousands of dollars)presents operating revenues,operating income,and invested assets of the company over the last three years:
The following table shows the number of executives covered by the current compensation package of HPI:
The current compensation package is an annual bonus award.The senior executives share in the bonus pool.The pool is calculated as 20% of the annual residual income of the company.The residual income is defined as operating income minus a cost of capital charge of 15% of invested assets.Round all calculations to two significant digits.Return on assets for the cosmetics division in 2008 is:

A)19.00%
B)22.00%
C)16.00%
D)18.95%
Below

Question 52

In service firms,financial results can be measured by all the following except:

A)Staff utilization.
B)The profit multiplier.
C)Collections of accounts.
D)Throughput.

Question 53

There is a common concern today that executive compensation in the U.S.is:

A)Not adequately linked to strategic performance measures
B)Ineffective as a performance incentive
C)Not properly disclosed to the IRS
D)Varies too greatly from industry to industry

Question 54

Which of the following would explain why a manager would elect to defer bonus compensation to future years?

A)Interest rates are expected to decrease.
B)The firm will be issuing an initial public offering in the near future.
C)To show dedication to the company.
D)To avoid or defer taxes.

Question 55

Which of the following aspects would not play a strategic role in management compensation?

A)Ethical issues.
B)Strategic conditions facing the firm.
C)The effect of comparable positions within the industry.
D)The effect of risk aversion on managers' decision making.

Question 56

Common bases of bonus compensation include:

A)A
B)B
C)C
D)D
E)E

Question 57

Best Brand Inc.(BBI)manufactures household goods in the United States.The company made two acquisitions in previous years to diversify its product lines.In 2005,HPI acquired cosmetics and consumer electronics companies.BBI is now,in 2010,comprised of three divisions: cosmetics,household,and consumer electronics.The following information (in thousands of dollars)presents operating revenues,operating income,and invested assets of the company over the last three years:
The following table shows the number of executives covered by the current compensation package of HPI:
The current compensation package is an annual bonus award.The senior executives share in the bonus pool.The pool is calculated as 20% of the annual residual income of the company.The residual income is defined as operating income minus a cost of capital charge of 15% of invested assets.Round all calculations to two significant digits.Return on sales in the household division in 2009 is (rounded):

A)6.34%
B)7.69%
C)7.88%
D)8.54%
Below

Question 58

Best Brand Inc.(BBI)manufactures household goods in the United States.The company made two acquisitions in previous years to diversify its product lines.In 2005,HPI acquired cosmetics and consumer electronics companies.BBI is now,in 2010,comprised of three divisions: cosmetics,household,and consumer electronics.The following information (in thousands of dollars)presents operating revenues,operating income,and invested assets of the company over the last three years:
The following table shows the number of executives covered by the current compensation package of HPI:
The current compensation package is an annual bonus award.The senior executives share in the bonus pool.The pool is calculated as 20% of the annual residual income of the company.The residual income is defined as operating income minus a cost of capital charge of 15% of invested assets.Round all calculations to two significant digits.The total amount of the bonus pool for 2009 is:

A)$134,000.
B)$218,000.
C)$141,000.
D)$174,000.
E)$205,000.

Question 59

The commonly used approaches for business valuation include:

A)A
B)B
C)C
D)D
E)E

Question 60

Compensation plans for high-level managers and executives are usually explained in the firm's:

A)Management Discussion and Analysis (MD&A).
B)Income Statement.
C)Notes to the Financial Statements.
D)Proxy Statement.

Question 61

Which of the following types of compensation does not provide a deduction to the firm for tax purposes?

A)Perks
B)Qualified stock options
C)Retirement plans
D)Current bonus
E)Performance shares

Question 62

Choosing Bonus Plans Mobile Business Incorporated (MBI)is a worldwide manufacturing company that specializes in high technology products for the aerospace,automotive and plastics industries.The state-of-the-art technology and business innovation have been key to MBI's success over the last ten years.After a meeting of the board of directors,there was some feeling that the company was moving away from its goal of striving to maintain and expand its global position through innovative management teams.One area of concern was with the company's bonus compensation package.The company's current bonus plan focuses on giving reward based on the utilization of capital within the company,i.e.management of inventory,collection of receivables and use of physical assets.Even with such a state-of-the-art bonus plan,the board of directors is concerned with the short-term focus of the compensation package.MBI's basis in current financial standards suggests that the future period consequences of managerial actions will not be reflected when presenting bonus compensation.Required: Help MBI solve the problem of basing bonuses on short-term decisions.Develop a bonus package that takes into consideration the long-term financial position of MBI.

Question 63

The King Mattress Company had the following operating results for 2009-2010.In addition,the company paid dividends in both 2009 and 2010 of $60,000 per year and made capital expenditures in both years of $30,000 per year.The company's stock price in 2009 was $8 and $7 in 2010.The industry average earnings multiple for the mattress industry was 9 in 2010 and the free cash flow and sales multiples were 18 and 1.5,respectively.The company is publicly owned and has 1,200,000 shares of outstanding stock at the end of 2010.
The gross margin percentage for 2010 is (rounded):

A)11.2%
B)12.7%
C)13.7%
D)14.9%
$650,000/$4,750,000 = 13.7%

Question 64

The King Mattress Company had the following operating results for 2009-2010.In addition,the company paid dividends in both 2009 and 2010 of $60,000 per year and made capital expenditures in both years of $30,000 per year.The company's stock price in 2009 was $8 and $7 in 2010.The industry average earnings multiple for the mattress industry was 9 in 2010 and the free cash flow and sales multiples were 18 and 1.5,respectively.The company is publicly owned and has 1,200,000 shares of outstanding stock at the end of 2010.
The value of the company,calculated using the free cash flow multiple for 2010 is:

A)$1,220,000
B)$1,620,000
C)$2,520,000
D)$8,400,000
18 x ($230,000 - $30,000 - $60,000)= $2,520,000

Question 65

There is a current tax for the manager when which of the following types of compensation is received?

A)Qualified stock options
B)Nonqualified stock options
C)Deferred bonus
D)Current bonus
E)Performance shares

Question 66

Bonus payment options include all of the following except:

A)Perks.
B)Current bonus.
C)Deferred bonus.
D)Stock options.
E)Performance shares.

Question 67

There is a current tax deduction for the firm for which of the following types of compensation?

A)Qualified stock options.
B)Nonqualified stock options.
C)Deferred bonus.
D)Current bonus.
E)Performance shares.

Question 68

The King Mattress Company had the following operating results for 2009-2010.In addition,the company paid dividends in both 2009 and 2010 of $60,000 per year and made capital expenditures in both years of $30,000 per year.The company's stock price in 2009 was $8 and $7 in 2010.The industry average earnings multiple for the mattress industry was 9 in 2010 and the free cash flow and sales multiples were 18 and 1.5,respectively.The company is publicly owned and has 1,200,000 shares of outstanding stock at the end of 2010.
The value of the company,calculated using the sales multiple for 2010 is:

A)$1,220,000
B)$1,620,000
C)$2,520,000
D)$8,400,000
E)$7,125,000

Question 69

The King Mattress Company had the following operating results for 2009-2010.In addition,the company paid dividends in both 2009 and 2010 of $60,000 per year and made capital expenditures in both years of $30,000 per year.The company's stock price in 2009 was $8 and $7 in 2010.The industry average earnings multiple for the mattress industry was 9 in 2010 and the free cash flow and sales multiples were 18 and 1.5,respectively.The company is publicly owned and has 1,200,000 shares of outstanding stock at the end of 2010.
The accounts receivable turnover ratio for 2010 is:

A)11.2
B)12.7
C)13.7
D)14.9
$4,750,000/[($350,000 + 400,000)/2] = 12.7

Question 70

Compensation;Review of Chapter 19 Products Inc.manufactures furniture and is organized into three large divisions: bedroom,living room,and dining room furniture.The following information presents operating revenues,operating incomes and invested assets of the company over the last three years.(all figures in 000s)

Question 71

The King Mattress Company had the following operating results for 2009-2010.In addition,the company paid dividends in both 2009 and 2010 of $60,000 per year and made capital expenditures in both years of $30,000 per year.The company's stock price in 2009 was $8 and $7 in 2010.The industry average earnings multiple for the mattress industry was 9 in 2010 and the free cash flow and sales multiples were 18 and 1.5,respectively.The company is publicly owned and has 1,200,000 shares of outstanding stock at the end of 2010.
Return on assets for 2010 is:

A)9.2%
B)16.4%
C)13.7%
D)19.2%
$180,000/[($2,020,000 + 1,900,000)/2] = 9.2%

Question 72

The King Mattress Company had the following operating results for 2009-2010.In addition,the company paid dividends in both 2009 and 2010 of $60,000 per year and made capital expenditures in both years of $30,000 per year.The company's stock price in 2009 was $8 and $7 in 2010.The industry average earnings multiple for the mattress industry was 9 in 2010 and the free cash flow and sales multiples were 18 and 1.5,respectively.The company is publicly owned and has 1,200,000 shares of outstanding stock at the end of 2010.
Return on equity for 2010 is (rounded):

A)11.6%
B)14.6%
C)15.5%
D)18.9%
$180,000/[($1,220,000 + 1,100,000)/2] = 15.5

Question 73

Economic value added is calculated from:

A)Average total assets,current liabilities,net income,and the cost of capital.
B)EVA net income and EVA invested capital.
C)Net income,cost of capital,and net assets.
D)Net income and the cost of capital.
E)EVA net income,the cost of capital,and EVA invested capital.

Question 74

Cost Allocation and Compensation Performance of divisional managers at Leakproof Faucet Corporation is judged by an evaluation of the operating incomes of the divisions.Abbreviated income statements for the year ending 2010 are shown below for the three divisions of Leakproof Faucet Corp:

Question 75

The King Mattress Company had the following operating results for 2009-2010.In addition,the company paid dividends in both 2009 and 2010 of $60,000 per year and made capital expenditures in both years of $30,000 per year.The company's stock price in 2009 was $8 and $7 in 2010.The industry average earnings multiple for the mattress industry was 9 in 2010 and the free cash flow and sales multiples were 18 and 1.5,respectively.The company is publicly owned and has 1,200,000 shares of outstanding stock at the end of 2010.
The value of the company,calculated using the earnings multiple for 2010 is:

A)$1,220,000
B)$1,620,000
C)$2,520,000
D)$8,335,000
9 x $180,000 = $1,620,000

Question 76

The King Mattress Company had the following operating results for 2009-2010.In addition,the company paid dividends in both 2009 and 2010 of $60,000 per year and made capital expenditures in both years of $30,000 per year.The company's stock price in 2009 was $8 and $7 in 2010.The industry average earnings multiple for the mattress industry was 9 in 2010 and the free cash flow and sales multiples were 18 and 1.5,respectively.The company is publicly owned and has 1,200,000 shares of outstanding stock at the end of 2010.
The current ratio for 2010 is:

A)1.8
B)2.0
C)3.9
D)4.7
$940,000/$200,000 = 4.7

Question 77

Choosing Between Incentive PlansBrogdon is a ski instructor looking for employment in the Oregon mountains.He has received full-time job offers from two ski lodges,and must choose between them.The two jobs seem equally attractive,so Brogdon wants to choose the lodge which will pay him the higher compensation.Running Elk Lodge offers a wage of $8.00 per hour for a 40 hour week,plus 30% of the fees paid by walk-on pupils desiring private lessons,plus 40% of fees from pupils who specifically request a private lesson from Brogdon.Blustery Ridge Lodge offers a wage of only $6.00 per hour,plus 25% of walk-on private fees,45% of request private fees,and 15% of the fees paid by walk-on groups.Both lodges charge skiers $50 for private lessons and $100 per 5-person group for group lessons.Brogdon's previous experience leads him to expect weekly volume of 15 walk-on privates,6 request privates,and 20 walk-on groups.Required: Which job should Brogdon accept? What factors should Brogdon consider in making his choice?

Question 78

Performance shares grant stock for achieving certain performance goals:

A)In the following year.
B)In two years or more.
C)In the current period.
D)When stock prices improve.

Question 79

The King Mattress Company had the following operating results for 2009-2010.In addition,the company paid dividends in both 2009 and 2010 of $60,000 per year and made capital expenditures in both years of $30,000 per year.The company's stock price in 2009 was $8 and $7 in 2010.The industry average earnings multiple for the mattress industry was 9 in 2010 and the free cash flow and sales multiples were 18 and 1.5,respectively.The company is publicly owned and has 1,200,000 shares of outstanding stock at the end of 2010.
The inventory turnover ratio for 2010 is (rounded):

A)11.2
B)12.7
C)13.7
D)14.9
$4,100,000/[($300,000 + 250,000)/2] = 14.9

Question 80

A CFO whose compensation plan may have had the effect of creating an incentive for unethical actions includes:

A)Kenneth Lay
B)Scott Sullivan
C)Bernie Madoff
D)Dennis Kozlowski
Only Sullivan was a CFO