Exam 12: Capital Budgeting Decisions

Return on investment can provide information at to the benefits that managers can obtain by reducing their investments in current and fixed assets.

Which of the following statements provide(s)an argument in favor of including only a plant's net book value rather than gross book value as part of operating assets in the ROI computation? I Net book value is consistent with how plant and equipment items are reported on a balance sheet. II Net book value is consistent with the computation of net operating income,which includes depreciation as an operating expense. III Net book value allows ROI to decrease over time as assets get older.

Jimbob Co.has four operating divisions with the following information for the most recent fiscal year.

For the past year,the turnover was?

For the past year,the margin was?

Suppose the manager of the Axle Division desires an annual residual income of $45,000.In order to achieve this,Axle should sell how many units per year?

For the past year,the return on investment was?

Profit centre managers are authorized to make decisions about pricing,production,operations and capital acquisitions.

How much is the return on the investment?

How many units must the South Division sell each year to have an ROI of 16%?

Suppose the manager of the Axle Division desires a return on investment of 22%.In order to achieve this goal,the Axle Division must sell how many units per year?

An investment centre has the highest level of responsibility from a performance management perspective.

If the Axle Division sells 16,000 units per year,the return on investment should be?

The minimum required rate of return for the past year was?

Company A's residual income is?

Cost centre managers are often evaluated by comparing actual costs under their control against budgeted or standard costs using variance analysis.