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Question # 00004315 Posted By: spqr Updated on: 12/01/2013 08:23 PM Due on: 12/20/2013
Subject Finance Topic Finance Tutorials:
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21. A measure of the manager's ability to control expenses and increase revenues in order to improve profitability is:

A. Residual income (RI) divided by level of invested capital.

B. Return on equity (ROE).

C. Return on investment (ROI).

D. Return on sales (ROS).

E. Asset turnover (AT).

22. A measure of the manager's ability to produce increased sales from a given level of investment is:

A. Residual income (RI) divided by level of invested capital.

B. Return on equity (ROE).

C. Return on investment (ROI).

D. Return on sales (ROS).

E. Asset turnover (AT).


28. The historical cost of an asset less its accumulated depreciation is:

A. Net book value (NBV).

B. Return on equity (ROE).

C. Return on investment (ROI).

D. A rough measure of current replacement cost of the asset.

E. An estimate of liquidation value of the asset.

29. Replacement cost of a division's assets will most probably be greater than:

A. Gross book value (GBV) of the assets.

B. Historical cost of the assets.

C. Liquidation value of the assets.

D. Price-level adjusted cost of the assets.

E. Current cost of the assets.

30. Which one of the following is not a limitation shared by residual income (RI) and return on investment (ROI) divisional performance measures?

A. They are both short-term performance indicators.

B. They both may fail to capture significant value-creating activities of the organization.

C. They are both subject to short-term manipulation on the part of divisional managers.

D. Both are subject to a number of measurement issues that complicate their use in practice.

E. They both relate, in percentage terms, earnings to the level of investment in each division.

31. The estimated cost to replace assets at the current level of service and functionality is defined as:

A. Gross book value.

B. Historical cost, plus accumulated depreciation to date.

C. Liquidation value.

D. Replacement cost.

E. Price-level adjusted original cost.

32. The estimated price that could be received for the sale of divisional assets is referred to as:

A. Gross book value (GBV), plus accumulated depreciation to date.

B. Gross book value (GBV).

C. Price-level adjusted cost.

D. Replacement cost.

E. Liquidation value.

33. A dollar amount equal to the operating income of a division less a charge for the level of investment in the division is called:

A. Operating profit after tax.

B. Return on investment (ROI).

C. Earnings from continuing operations.

D. Return on equity (ROE).

E. Residual income (RI).

34. A division's after-tax cash operating income less depreciation and less an imputed cost of capital is called its:

A. After-tax operating income.

B. Income from continuing operations.

C. Return on sales (ROS).

D. Economic value added (EVA®).

E. Residual income (RI).

35. ROI, though widely used, is subject to which one of the following limitations?

A. ROI cannot incorporate differences in risk across different divisions.

B. ROI ignores the amount of capital invested in a division.

C. ROI may not capture value-creation for firms operating in capital-intensive industries.

D. ROI may motivate managers to take suboptimal decisions from the standpoint of the organization as a whole.

E. ROI cannot be used to judge the performance of units of different size.


36. All of the following are listed as possible transfer pricing methods except:

A. Market price.

B. Variable cost.

C. Fixed cost.

D. Full cost.

E. Negotiated price.

37. Which one of the following establishes an "arm's-length price" by using the sales prices of similar products made by unrelated firms?

A. Wholesale-price method.

B. Retail-price method.

C. Related-products method.

D. Cost-plus method.

E. Comparable-price method.

38. Which one of the following transfer pricing alternatives is based on determining an appropriate markup, where the markup is based on gross profits of unrelated firms selling similar products?

A. Wholesale-price method.

B. Resale-price method.

C. Net-price method.

D. Cost-plus method.

E. Comparable-price method.

39. Which one of the following determines the transfer price based on the seller's costs, plus a gross profit percentage determined from comparison of sales of the seller to those of unrelated parties?

A. Wholesale-price method.

B. Resale-price method.

C. Net-price method.

D. Cost-plus method.

E. Comparable-price method.

Consider the following data for three divisions of a company, X, Y, and Z:

40. The return on investment (ROI) for Division X is:

A. 8.0%.

B. 12.0%.

C. 20.0%.

D. 25.0%.

E. 40.0%.

41. The return on investment (ROI) for Division Y is:

A. 8.0%.

B. 12.0%.

C. 20.0%.

D. 25.0%.

E. 40.0%.

42. The return on investment (ROI) for Division Z is:

A. 8.0%.

B. 12.0%.

C. 20.0%.

D. 25.0%.

E. 40.0%.


43. The return on sales (ROS) for Division X is:

A. 5.0%.

B. 8.0%.

C. 12.0%.

D. 14.0%.

E. 20.0%.

44. The return on sales (ROS) for Division Y is:

A. 5.0%.

B. 8.0%.

C. 12.0%.

D. 14.0%.

E. 20.0%.

45. The return on sales (ROS) for Division Z is:

A. 5.0%.

B. 8.0%.

C. 12.0%.

D. 14.0%.

E. 20.0%.

46. The asset turnover (AT) for Division X is (rounded):

A. 1.43.

B. 1.60.

C. 1.67.

D. 2.86.

E. 3.33.

47. The asset turnover (AT) for Division Y is calculated to be (rounded):

A. 1.43.

B. 1.60.

C. 1.67.

D. 2.86.

E. 3.33.

48. The asset turnover (AT) for Division Z is:

A. 1.43.

B. 1.60.

C. 1.67.

D. 2.86.

E. 3.33.

Consider the following data from two divisions of a company, P and Q:

49. If the minimum rate of return is 11%, what is Division P's residual income (RI)?

A. $160,000.

B. $1,040,000.

C. $1,060,000.

D. $1,434,000.

E. $3,934,000.


50. If the minimum rate of return is 11%, what is Division Q's residual income (RI)?

A. $147,500.

B. $490,000.

C. $752,000.

D. $950,000.

E. $1,049,500.

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Tutorials for this Question
  1. Tutorial # 00004110 Posted By: spqr Posted on: 12/01/2013 09:07 PM
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    to replace assets at the current level of service and ...
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