Exam 19: Divisional Financial Performance Measures

Assuming all other things are equal, a company's ROI would decrease when

Return on investment (ROI) is calculated as

The evaluation of investment centres and the evaluation of the managers who run them

The following information was extracted from the accounting records of Florissant Valley Motors: Prior Year Current Year Margin 6.0 5.0 Tumover 2.5 3.2 Florissant Valley's ROI for the current year is

The following information pertains to the three divisions of Marlow Company: Division X Division Y Division Z Sales ? ? 1,250,000 Net operating income £36,000 £25,000 £75,000 Average operating assets 300,000 ? ? Return on investment ? 20\% 15\% Margin 0.10 0.05 ? Turnover 1.5 ? ? Target ROI 15\% 12\% 10\% What is the residual income for Division X?

Economic value added (EVA) is

The manager of an investment centre is responsible for

TotToys Ltd. recently made £2,000,000 of capital available to its Toddler Division. The manager of the Toddler Division is evaluating the possibility of investing the additional funds in two new toys. Information about the two new toys is as follows: Toy \#1 Toy \#2 Frojected investment £900,000 £750,000 Expected operating income 144,000 90,000 Any funds not invested in a project will be invested to earn the company's required minimum return of 10 per cent. Without the additional investment, the Toddler Division's average operating assets would have been £10,000,000, and its operating income would have been £1,400,000. a.Compute the Toddler Division's operating income and ROI, assuming that the division manager rejects both projects. b.Compute the Toddler Division's operating income and ROI, assuming that the division manager accepts only the Toy #1 project. c.Compute the Toddler Division's operating income and ROI, assuming that the division manager accepts only the Toy #2 project. d.Compute the Toddler Division's operating income and ROI, assuming that the division manager accepts both projects.(Round all computations to the nearest two decimal places.)

The sales in the Components Division last year totaled £600,000, and its ROI was 15 per cent. If the company's operating margin was 5 per cent, then its average operating assets must have been

Figure 19-1 Project Income Investment A £40,000 £800,000 B 44,000 400,000 C 46,875 625,000 Assume the division's current ROI is 10 per cent and the firm's minimum required rate of return is 6 per cent. -Refer to Figure 19-1. If you were the division manager and you were evaluated based on ROI, which projects would you accept?

Return on investment can be broken into two components:

The Production Department is most likely considered to be a(n)

What is an advantage of using economic value added (EVA) in performance measurement over return on investment (ROI)?

Stevens Company has two divisions that report on a decentralized basis. Their results for 2011 were as follows: Helmet Ball Sales £150,000 £300,000 Income £15,000 £45,000 Asset base £75,000 £150,000 Weighted average cost of capital 12\% 12\% a.Return on investment (ROI) if the desired rate of return is 12 per cent. b.Residual income if the desired rate of return is 20 per cent. c.EVA. d.Turnover if the desired rate of return is 25 per cent. e.Margin for each division if the desired rate of return is 10 per cent.

Advantages of decentralization include all of the following EXCEPT

____ exists when the major functions of organization are controlled by top management.

The EVA of Credit Financial's African Division was (£15,000) last year. If after-tax income is £60,000 and the capital employed totaled £500,000, what is the weighted average cost of capital?

Figure 19-3 The following results for the year pertain to the Maddox Division of Ryan Ltd.: Sales E640,000 Variable expenses 160,000 Fixed expenses 300,000 The weighted average cost of capital is 12 per cent. The firm's minimum required rate of return is 14 per cent. Taxes for the firm are 40 per cent. -Refer to Figure 19-3. If average operating assets are £1,000,000, return on investment for the Maddox Division is

If Dixie Company has sales of £1,200,000 and operating assets of £600,000, what operating margin will they have to earn to generate an ROI of 20 per cent?

Figure 19-4 Beta Division had the following information: Asset base in Beta Division £400,000 Net income in Beta Division £50,000 Weighted average cost of capital 12\% Target ROI 15\% Margin for Beta Division 20\% -Refer to Figure 19-4. What is the residual income for Beta Division?