Question 1

Keeping all other factors constant, which of the following would not cause an increase in the return on investment?

Accepted Answer

A)  actions that increase revenues 
B)  actions that increase liabilities 
C)  actions that decrease investments 
D)  actions that decrease expense 
E)  actions that increase sales 
A)  actions that increase revenues 
B)  actions that increase liabilities 
C)  actions that decrease investments 
D)  actions that decrease expense 
E)  actions that increase sales

Question 2

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:
   * = long-term assets at historical cost
-What is the current-cost depreciation in year 4 dollars?

Accepted Answer

A)  $165,000 
B)  $200,000 
C)  $240,000 
D)  $295,000 
E)  $440,000 
A)  $165,000 
B)  $200,000 
C)  $240,000 
D)  $295,000 
E)  $440,000

Question 3

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

Question 4

Which of the following is not a reason for evaluating subunits over a multi-year time horizon?

Accepted Answer

A)  Benefits of actions taken in the current period may not show up in a short-term performance measure. 
B)  Managers may curtail R & D or plant maintenance in order to increase short-term results. 
C)  Investments may actually decrease ROI and or RI in the short-term. 
D)  The NPV of the cash flows over the life of an investment equals [total assets ÷ ROI]. 
E)  Investments may actually decrease ROI and or RI in the short-term, and benefits of actions taken in the current period may not show up in a short-term performance measure. 
A)  Benefits of actions taken in the current period may not show up in a short-term performance measure. 
B)  Managers may curtail R & D or plant maintenance in order to increase short-term results. 
C)  Investments may actually decrease ROI and or RI in the short-term. 
D)  The NPV of the cash flows over the life of an investment equals [total assets ÷ ROI]. 
E)  Investments may actually decrease ROI and or RI in the short-term, and benefits of actions taken in the current period may not show up in a short-term performance measure.

Question 5

Use the information below to answer the following question(s).
Ruth Cleaning Products manufactures home cleaning products. The company has two divisions, Bleach and Bleach-2. 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 required rate of return of 15 percent.
-What are Bleach's and Bleach-2's return on investment based on current values?

Accepted Answer

A)  0.22; 0.67 
B)  0.42; 0.52 
C)  0.52; 0.42 
D)  0.67; 0.22 
E)  0.50; 0.45 
A)  0.22; 0.67 
B)  0.42; 0.52 
C)  0.52; 0.42 
D)  0.67; 0.22 
E)  0.50; 0.45

Question 6

The only criticism of team-based compensation is that the incentives for individual employees to excel are diminished, harming overall performance.

Accepted Answer

A) True 
 B)False

Question 7

Kase Tractor Company allows its divisions to operate as autonomous units. The tax rate is 35% and other operating data for the past year follow:
   Required:
a. Compute the return on investment for each division.
b. Compute the EVA for each division
c. What other ratio could be calculated for performance evaluation?

Accepted Answer

a.
 @#IMG-DLM& b.
 @#IMG-DLM& @#IMG-DLM& @#IMG-DLM& c. Resid

Question 8

Benchmarks represent 'best practices', and can be derived from either inside or outside the organization.

Accepted Answer

A) True 
 B)False

Question 9

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

Bacchus Ltd.:
 @#IMG-DLM& Alpha Division:
A = $2,6

Question 10

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 value of the total assets belonging to the Beta Division?

Accepted Answer

A)  $4,333,333 
B)  $5,952,380 
C)  $6,500,000 
D)  $7,151,800 
E)  $4,654,252 
A)  $4,333,333 
B)  $5,952,380 
C)  $6,500,000 
D)  $7,151,800 
E)  $4,654,252

Question 11

Use the information below to answer the following question(s).
Brandorf Company has two sources of funds: long term debt with a market and book value of $9 million issued at an interest rate of 10 percent; and, equity capital that has a market value of $6 million (book value of $2 million). The cost of equity capital is 5 percent, while the tax rate is 30 percent. Brandorf Company has profit centres in the following locations with the following data:
  
-What is EVA for Ottawa?

Accepted Answer

A)  $218,200 
B)  $42,600 
C)  $163,200 
D)  $480,000 
E)  $140,000 
A)  $218,200 
B)  $42,600 
C)  $163,200 
D)  $480,000 
E)  $140,000

Question 12

Paymaster Company provided the following information for the year just ended.   What is the return on investment?

Accepted Answer

A)  2.25 
B)  1.57 
C)  1.05 
D)  0.59 
E)  0.55 
A)  2.25 
B)  1.57 
C)  1.05 
D)  0.59 
E)  0.55

Question 13

Use the information below to answer the following question(s).
Brandorf Company has two sources of funds: long term debt with a market and book value of $9 million issued at an interest rate of 10 percent; and, equity capital that has a market value of $6 million (book value of $2 million). The cost of equity capital is 5 percent, while the tax rate is 30 percent. Brandorf Company has profit centres in the following locations with the following data:
  
-A company's weighted-average cost of capital [WACC] was 9.6% last year. The company has $6,000,000 of bonds payable (its only debt) with a 9.25% coupon, and has $9,000,000 in equity capital. The tax rate is 35%. What is the company's cost of equity capital? (two decimal places only)

Accepted Answer

A)  6.00% 
B)  6.25% 
C)  6.50% 
D)  9.25% 
E)  12.00% 
A)  6.00% 
B)  6.25% 
C)  6.50% 
D)  9.25% 
E)  12.00%

Question 14

The benefits of tying performance measures more closely to a manager's efforts encourage the use of

Accepted Answer

A)  financial measures. 
B)  nonfinancial measures. 
C)  nonfinancial and financial measures. 
D)  performance input measures. 
E)  moral measures. 
A)  financial measures. 
B)  nonfinancial measures. 
C)  nonfinancial and financial measures. 
D)  performance input measures. 
E)  moral measures.

Question 15

A multinational established a division in a South American country as a subsidiary corporation, with an initial investment in total assets of 13 million CU's (the local currency is CU's), which cost the company $3,250,000 Canadian at the time. The company sent an experienced manager to run the division, and gave her a target of 13% required rate of return, promising a bonus if this was met and/or exceeded.
After one year, the subsidiary manager was pleased to report a 20% ROI.
You have been able to determine the following data pertaining to the subsidiary:
• Exchange rate at end of year was 8 CU's to 1 Cdn dollar
• Operating income was earned evenly throughout the year
• The exchange rate changed approximately evenly throughout the year
Required:
a. Calculate the subsidiary's income in CU's.
b. Calculate the subsidiary's ROI in Canadian dollars.
c. Calculate the subsidiary's RI in Canadian dollars.

Accepted Answer

a. income ÷ 13,000,000 CU's =

Question 16

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%.
  
-What is the EVA for Bish Bash Falls?

Accepted Answer

A)  $338,563 
B)  $305,000 
C)  $275,500 
D)  $255,500 
E)  $220,188 
A)  $338,563 
B)  $305,000 
C)  $275,500 
D)  $255,500 
E)  $220,188

Question 17

Endicott Inc. has four divisions. Each division produces and sells a variety of industrial products. The company is developing a compensation plan for division managers. Three options are being considered: (a) salary, (b) performance based incentive using RI, (c) mix of salary and a performance based incentive using RI. What factors should be considered in designing this plan?

Accepted Answer

The basic trade-off to consider in desig

Question 18

The Dupont method of profitability analysis is

Accepted Answer

A)  TA - CL / operating income 
B)  ROI × WACC 
C)  [revenue / investment] × [income / revenue] 
D)  ROI / WACC 
E)  ROI × RI 
A)  TA - CL / operating income 
B)  ROI × WACC 
C)  [revenue / investment] × [income / revenue] 
D)  ROI / WACC 
E)  ROI × RI

Question 19

Which of the following incorporates the amount of investment into a performance measure?

Accepted Answer

A)  dividend income 
B)  residual income 
C)  return on investment 
D)  both residual income and return on investment 
E)  both dividend income and residual 
A)  dividend income 
B)  residual income 
C)  return on investment 
D)  both residual income and return on investment 
E)  both dividend income and residual

Question 20

Bob Cellular Phone uses ROI to measure divisional performance. Annual ROI calculations for each division have traditionally employed the ending amount of invested capital along with annual operating income and net revenue. The DuPont method is generally used. The company's Phone Accessories Division had the following results:
Previous Year ROI = ($2,000,000/$20,000,000) × ($20,000,000/$10,000,000) = 0.20
Current Year ROI = ($2,400,000/$25,000,000) × ($25,000,000/$15,000,000) = 0.16
Corporate management was disappointed in the performance of the division for the current year since it had made an additional investment in the division which was budgeted for a 23 percent ROI.
Required:
a. Discuss some factors that may have contributed to the decrease in ROI for the current year.
b. Assume 'total assets employed' are 10% less than total assets. What is the effect of using 'total assets employed' when calculating ROI?

Accepted Answer

a. While sales increased by 25 percent,

Keeping all other factors constant, which of the following would not cause an increase in the return on investment?

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: * = long-term assets at historical cost -What is the current-cost depreciation in year 4 dollars?

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?

Which of the following is not a reason for evaluating subunits over a multi-year time horizon?

The only criticism of team-based compensation is that the incentives for individual employees to excel are diminished, harming overall performance.

Benchmarks represent 'best practices', and can be derived from either inside or outside the organization.

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.

Paymaster Company provided the following information for the year just ended. What is the return on investment?

The benefits of tying performance measures more closely to a manager's efforts encourage the use of

The Dupont method of profitability analysis is

Which of the following incorporates the amount of investment into a performance measure?

The Accountants Vital Role in Decision Making

An Introduction to Cost Terms and Purposes

Cost-Volume-Profit Analysis

Job Costing

Activity-Based Costing and Management

Master Budget and Responsibility Accounting

Flexible Budgets, Variances, and Management Control: I

Flexible Budgets, Variances, and Management Control: II

Income Effects of Denominator Level on Inventory Valuation

Quantitative Analyses of Cost Functions

Decision Making and Relevant Information

Pricing Decisions, Product Profitability Decisions, and Cost Management

Strategy, Balanced Scorecard, and Profitability Analysis

Period Cost Allocation

Cost Allocation: Joint Products and Byproducts

Revenue and Customer Profitability Analysis

Process Costing

Spoilage, Rework, and Scrap

Cost Management: Quality, Time, and the Theory of Constraints

Inventory Cost Management Strategies

Capital Budgeting: Methods of Investment Analysis

Capital Budgeting: a Closer Look

Transfer Pricing and Multinational Management Control Systems

Filters

Exam 24: Multinational Performance Measurement and Compensation

Keeping all other factors constant, which of the following would not cause an increase in the return on investment?

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: * = long-term assets at historical cost -What is the current-cost depreciation in year 4 dollars?

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?

Which of the following is not a reason for evaluating subunits over a multi-year time horizon?

The only criticism of team-based compensation is that the incentives for individual employees to excel are diminished, harming overall performance.

Benchmarks represent 'best practices', and can be derived from either inside or outside the organization.

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.

Paymaster Company provided the following information for the year just ended. What is the return on investment?

The benefits of tying performance measures more closely to a manager's efforts encourage the use of

The Dupont method of profitability analysis is

Which of the following incorporates the amount of investment into a performance measure?

The Accountants Vital Role in Decision Making

An Introduction to Cost Terms and Purposes

Cost-Volume-Profit Analysis

Job Costing

Activity-Based Costing and Management

Master Budget and Responsibility Accounting

Flexible Budgets, Variances, and Management Control: I

Flexible Budgets, Variances, and Management Control: II

Income Effects of Denominator Level on Inventory Valuation

Quantitative Analyses of Cost Functions

Decision Making and Relevant Information

Pricing Decisions, Product Profitability Decisions, and Cost Management

Strategy, Balanced Scorecard, and Profitability Analysis

Period Cost Allocation

Cost Allocation: Joint Products and Byproducts

Revenue and Customer Profitability Analysis

Process Costing

Spoilage, Rework, and Scrap

Cost Management: Quality, Time, and the Theory of Constraints

Inventory Cost Management Strategies

Capital Budgeting: Methods of Investment Analysis

Capital Budgeting: a Closer Look

Transfer Pricing and Multinational Management Control Systems

Filters