Question 1

Ethical behaviour on the part of managers, while important for its own sake, is not paramount in importance.

Accepted Answer

A) True 
 B)False

Question 2

Use the information below to answer the following question(s).Thacker Company has two regional offices.The information for each is as follows:
 
-What is the return on investment for the Sarnia division?

Accepted Answer

A) 0.21 
B) 0.27 
C) 0.48 
D) 2.06 
E) 0.25

Question 3

Team incentives encourage cooperation by

Accepted Answer

A) forcing people to work together on difficult tasks. 
B) changing management style. 
C) letting individuals help one another as they strive toward a common goal. 
D) rewarding based on team performance. 
E) rewarding team members individually.

Question 4

LaserLife Printer Cartridge Company is a decentralized organization with several autonomous divisions.The division managers are evaluated, in part, on the basis of the change in their return on invested assets.Operating results for the Packer Division for the upcoming year are budgeted as follows:
  Total assets for the division are currently $3,600,000.For next year the division can add a new product line for an investment of $600,000.The new product line will generate sales of $1,600,000 and will incur fixed expenses of $600,000 annually.Variable costs of the new product will average 60 percent of selling price.Required:
a.What will be the company's ROI after accepting the new product line?
b.If the company's required rate of return is 6 percent, and residual income is used to evaluate managers, would this encourage the division to accept the new product line? Explain and show computations.

Accepted Answer

The answer of LaserLife Printer Cartridge Company is a decentralized...

Question 5

Gasfield Maintenance Ltd.purchased equipment for $225,000 that was CCA Class 8 (CCA rate of 20%).The vehicle was the only item in the Class 8 capital cost allowance pool.The vehicle is expected to generate net cash income, prior to tax effect, in the amount of $75,000 per year.The company uses straight-line depreciation, estimates a 5 year useful life with a $25,000 salvage value for the new equipment at the end of year 5.The marginal tax rate is 35% and the company's average tax rate is 25%.Management requires a rate of return of 15.0%.Assume that cash flows occur at the end of the year.Required:
a.What is the net present value of the investment in the vehicle? Include the effect of taxes in your calculation.
b.What is the anticipated residual income for the first year? The company uses net cash income for its' RI calculations.
c.What is the expected ROI for years one, two, and three assuming the company uses operating income and net book value for the calculations.What is the likely effect from using net book value in the ROI calculation on the management bonus system?

Accepted Answer

The answer of Gasfield Maintenance Ltd.purchased equipment for $225,000 that...

Question 6

Using net book value when calculating return on investment encourages managers whose performance is measured by this metric to replace assets.

Accepted Answer

A) True 
 B)False

Question 7

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%. 
-Which two ratios are used in the DuPont method of profitability analysis to create return on assets?

Accepted Answer

A) profit margin and asset turnover 
B) asset turnover and return on investment 
C) profit margin and operating leverage 
D) profit margin and return on sales 
E) return on sales and return on assets

Question 8

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

Accepted Answer

A) True 
 B)False

Question 9

Use the information below to answer the following question(s).The following data are available for a foundry operation started as a new company four years ago when the construction cost index was 125:
  * = "of long-term assets at historical cost"
-What is the net book value (NBV )of the long-term assets at current cost at the end of year 4?

Accepted Answer

A) $660,000 
B) $800,000 
C) $960,000 
D) $1,180,000 
E) $1,760,000

Question 10

The following table presents information related to three divisions of Bacchus Ltd.:
  The company's required rate of return is 10%.Required:
Solve for the unknowns.

Accepted Answer

The answer of The following table presents information related to...

Question 11

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%. 
-For the period just ended, Trident Ltd.reported profit of $22.6 million and invested capital of $250 million.Assuming an imputed interest rate of 8%, which of the following choices correctly denotes Trident's return on investment (ROI)and residual income respectively?

Accepted Answer

A) 8.32%; $20.792 million 
B) 9.04%; $20,792 million 
C) 9.76%; $4.408 million 
D) 9.04%; $2.6 million 
E) 9.76%; $2.6 million

Question 12

The Coffee Division of Canadian Products is planning the operating budget for next year.Average total assets of $1,500,000 will be used during the year and unit selling prices are expected to average $100 each.Variable costs of the division are budgeted at $400,000 while fixed costs are set at $250,000.The company's required rate of return is 18%.Required:
a.Compute the volume necessary to achieve a 20% ROI.
b.The division manager receives a bonus of 50% of the residual income.What is his anticipated bonus for next year assuming he achieves the targeted operating income in part a.and the required return is based on 18%?

Accepted Answer

The answer of The Coffee Division of Canadian Products is...

Question 13

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 return on sales if income is defined as operating income?

Accepted Answer

A) 0.40 
B) 0.53 
C) 0.92 
D) 1.33 
E) 2.50

Question 14

Managers use ________ to create an ongoing dialog around the organization's key strategic issues to personally involve themselves in subordinates' decision-making activities.

Accepted Answer

A) diagnostic control systems 
B) boundary systems 
C) belief systems 
D) interactive control systems 
E) isolated systems

Question 15

Use the information below to answer the following question(s).The following data are available for a heating, ventilating, and air conditioning (HVAC)vent manufacturer started as a new company four years ago when the construction cost index was 120:
  * = "of long-term assets at historical cost"
-What is the net book value (NBV )of the long-term assets at current cost at the end of year 4?

Accepted Answer

A) $640,000 
B) $426,667 
C) $720,000 
D) $810,000 
E) $540,000

Question 16

A control system that focuses on meeting expectations is known as a(n)

Accepted Answer

A) diagnostic control system. 
B) boundary system. 
C) belief system. 
D) interactive control system. 
E) isolated system.

Question 17

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

Accepted Answer

A) diagnostic control system. 
B) boundary system. 
C) belief system. 
D) interactive control system. 
E) isolated system.

Question 18

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.
-The cost today of purchasing an asset identical to the one currently held is called a(n)

Accepted Answer

A) actual cost. 
B) current cost. 
C) dual cost. 
D) fixed cost. 
E) sunk cost.

Question 19

If a company is a multinational company with operations in several different countries, one way to achieve comparability of historical-cost based ROIs for facilities in different countries is to

Accepted Answer

A) restate the results of operations using the cash basis method of accounting. 
B) use ASPE/IFRS for all reporting and calculations. 
C) restate the results of all operations in dollars. 
D) identify the rate of inflation in the most inflationary division and restate the other divisions' results using that rate. 
E) do nothing, the ROIs are comparable without adjustments.

Question 20

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 Alpha Division's return on sales?

Accepted Answer

A) 0.25 
B) 0.42 
C) 0.60 
D) 0.75 
E) 0.80

Exam 22: Multinational Performance Measurement and Compensation

Ethical behaviour on the part of managers, while important for its own sake, is not paramount in importance.

Use the information below to answer the following question(s) .Thacker Company has two regional offices.The information for each is as follows: -What is the return on investment for the Sarnia division?

Team incentives encourage cooperation by

Using net book value when calculating return on investment encourages managers whose performance is measured by this metric to replace assets.

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

The following table presents information related to three divisions of Bacchus Ltd.: The company's required rate of return is 10%.Required: Solve for the unknowns.

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 return on sales if income is defined as operating income?

Managers use ________ to create an ongoing dialog around the organization's key strategic issues to personally involve themselves in subordinates' decision-making activities.

A control system that focuses on meeting expectations is known as a(n)

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

If a company is a multinational company with operations in several different countries, one way to achieve comparability of historical-cost based ROIs for facilities in different countries is to