Exam 19: Divisional Financial Performance Measures

The following results for the current year are for the Calvin Division of Stinson Enterprises: Average operating assets are £500,000. The firm's minimum required rate of return is 10 per cent, the weighted average cost of capital is 8 per cent, and the tax rate is 30 per cent. Required: a. Calculate profit margin for the division. b. Calculate asset turnover for the division. c. Calculate return on investment (ROI) for the division. d. Calculate economic value added (EVA) for the division.

Profit centre managers would be evaluated based on

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

The following information pertains to the three divisions of Marlow Company: What is the residual income for Division X?

____ is the delegation of decision-making authority to successively lower management levels in an organization.

Return on investment (ROI) is calculated as

Investment centre managers would be evaluated based on

Compare and contrast return on investment (ROI) and economic value added (EVA).

The manager of an investment centre is responsible for

Which of the following measures should companies use for performance evaluation?

Stevens Company has two divisions that report on a decentralized basis. Their results for 2011 were as follows: Required: Compute the following amounts for each division: 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.

Figure 19-1 Assume the division's current ROI is 10 per cent and the firm's minimum required rate of return is 6 per cent. -The following information was extracted from the accounting records of Florissant Valley Motors: Florissant Valley's ROI for the current year is

Figure 19-1 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 above. If you were the president of the firm, which projects would you want the division manager to accept?

Figure 19-2 The following results for the year pertain to the Northern Division of Garvey Ltd.: -Refer to Figure 19-2. If Northern's average operating assets are £1,200,000 and their minimum required rate of return is 12 per cent, what is the Northern Division's return on investment?

In order to promote goal congruence, a manager of an investment centre is best evaluated using

Types of responsibility centres include all of the following EXCEPT

Figure 19-3 The following results for the year pertain to the Maddox Division of Ryan Ltd.: 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. -Dizzy Company's Asian Division employed capital of £250,000 last year. If the weighted average cost of capital is 15 per cent and if last year's after-tax income was £50,000, then EVA for the Asian Division last year was

The manager of the recently formed Oak Division of Parkes, Incorporated, is evaluating the following four investment opportunities available to the division. Parkes, Incorporated, requires a minimum return of 10 per cent. Required: a. Calculate the return on investment (ROI) for each investment opportunity. b. If only one investment opportunity can be funded and the division is evaluated based on ROI, which investment opportunity would be accepted? c. If Parkes, Incorporated, can fund all of the projects and wishes to achieve the best possible performance, which investments would be accepted?

Figure 19-1 Assume the division's current ROI is 10 per cent and the firm's minimum required rate of return is 6 per cent. -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

An example of an investment centre is a