Exam 23: Performance Measurement, Compensation, and Multinational Considerations

Aeralia Inc., has two regional offices. The data for each are as follows: What is the Maryland Division's return on investment?

Coldbrook Company has two sources of funds: long-term debt with a market and book value of $19,000,000 issued at an interest rate of 11%, and equity capital that has a market value of $7,000,000 (book value of $5,000,000). Coldbrook Company has profit centers in the following locations with the following operating incomes, total assets, and current liabilities. The cost of equity capital is 16%, while the tax rate is 35%. What is the EVA® for Brooksville? (Round intermediary calculations to four decimal places.)

What are the factors involved in choosing the timing of the feedback in designing accounting-based performance measures?

Vega Corp's corporate income has declined to unacceptable levels. To change the direction of the company, the board of directors hired a new chief executive officer. She is currently considering three alternative ways to reward division managers for performance. They are: 1.Give each manager a competitive salary with no bonus for performance. 2.Give each manager a base salary with the largest portion being a bonus based on performance, ROI being the yardstick. 3.Give each manager a base salary with a bonus based on comparative performance with the other divisions. Required: Evaluate each of the ideas, giving strengths and weaknesses.

A company has operating income of $300,000, revenues of $1,500,000, total assets of $2,000,000 and an ROI of 15%. To improve the ROI, to increase ROI to 20%, which of the following investment turnovers would need to be achieved?

Using net book value as an investment base will result in a lower ROI than using gross book value as an investment base.

The top management at Groundsource Company, a manufacturer of lawn and garden equipment, is attempting to recover from a fire that destroyed some of their accounting records. The main computer system was also severely damaged. The following information was salvaged: What is the Tractor Division's investment turnover?

Which of the following best describes interactive control systems?

Which of the following is a difference between a diagnostic control system and an interactive control system?

The top management at Amore Corp, a manufacturer of computer games, is attempting to recover from a flood that destroyed some of their accounting records. The main computer system was also severely damaged. The following information was salvaged: What were the sales for the Beta Division (a)?

Care Inc., has two divisions that operate independently of one another. The financial data for the year 2015 reported the following results: The company's desired rate of return is 10%. Income is defined as operating income. Which division has the best return on investment and which division has the best residual income figure, respectively?

In an EVA calculation, the measure of the invested capital for a division would be that division's assets minus that division's long-term liabilities.

Which of the following best describes a belief control system?

There should be strict congruence between the performance evaluation of a subunit and the performance evaluation of that subunit's manager.

Which of the following steps in designing an accounting-based performance measure includes decisions such as defining assets as total assets or net assets in the calculation of return on assets?

Carriage Incorporated manufactures horse 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 2018: ASSETSINCOME The company is currently using a 14% required rate of return. What are Wheels's and Assembly's return on investment based on current values, respectively?

Intrinsic motivation comes from being given greater responsibility, doing interesting and creative work, and having pride in doing that work.

What targets should companies use, and when should they give feedback to managers regarding their performance relative to the targets?

The top management at Groundsource Company, a manufacturer of lawn and garden equipment, is attempting to recover from a fire that destroyed some of their accounting records. The main computer system was also severely damaged. The following information was salvaged: What is the value of the operating assets belonging to the Tiller Division?

Capital Investments has three divisions. Each division's required rate of return is 15%. Planned operating results for 2015 are as follows: The company is planning an expansion, which will require each division to increase its investments by $25,000,000 and its income by $4,500,000. Required: a.Compute the current ROI for each division. b.Compute the current residual income for each division. c.Rank the divisions according to their current ROIs and residual incomes. d.Determine the effects after adding the new project to each division's ROI and residual income. e.Assuming the managers are evaluated on either ROI or residual income, which divisions are pleased with the expansion and which ones are unhappy?