36. How will
increases
in the following items affect residual income?
37. Which of the following should
not
be used for the cost of capital to compute residual
income?
38. A manager can always increase his/her return on investment (ROI) by:
39. Which one of the following items would most likely
not
be incorporated into the
calculation of a division’s investment base when using the residual income approach for
performance measurement and evaluation?
40. Which of the following items would
not
be an example of an economic value added (EVA)
adjustment to eliminate accounting distortions?
41. Which of the following items would
not
require an adjustment to capital employed when
using economic value added (EVA)?
42. Economic value added (EVA) is a concept that is closely related to residual income. EVA is
computed by:
43. Economic value added (EVA) assumes that which of the following GAAP expenses would
not result in an adjustment to either the income or the capital employed?
44. Which of the following statements regarding the use of historical costs and current costs
to compute return on investment (ROI) is (are) true?
(A) Historical costs are based on the original costs to acquire a long-term asset, while current
costs represent the costs to replace the long-term asset.
(B) For a specific multiple-period project, the return on investment (ROI) computed using current
costs will generally be less than the ROI computed using historical costs.
45. Level return on investments (ROI) over the life of a long-term project is more likely when
ROI is computed using:
46. Using ending balances for the investment base in computing return on investment (ROI)
might encourage managers to acquire assets:
47. Using beginning balances for the investment base in computing return on investment
(ROI) might encourage managers to acquire assets:
48. The Multidivision Corporation reported the following operating results for its three
divisions: South, West, and East.
Which division has the smallest return on investment (ROI)?
49. The Multidivision Corporation reported the following operating results for its three
divisions: South, West, and East.
Which division has the largest asset turnover?
50. The Multidivision Corporation reported the following operating results for its three
divisions: South, West, and East.
Which division’s profit margin is the highest?
14–33
51. The following information was presented by Delta Manufacturing Company for an asset
purchased at the end of the previous year.
What is the return on investment (ROI) assuming Delta (a) uses the straight-line method for
depreciation and (b) beginning–of-year net book values to compute ROI?
52. The following information was presented by Gamma Manufacturing Company for an asset
purchased at the end of the previous year.
What is the return on investment (ROI) assuming Gamma (a) uses the straight-line method for
depreciation and (b) beginning–of-year net book values to compute ROI?
53. The following information was presented by Charlie Manufacturing Company for an asset
purchased at the beginning of the previous year.
What is the return on investment (ROI) assuming Charlie (a) uses the straight–line method for
depreciation and (b) average net book values to compute ROI?
54. Welsh Corporation’s return on investment (ROI) on some new equipment was 20% using
beginning-of-year net book value. The gross book value of the equipment is $250,000.
Accumulated depreciation at the beginning of the year was $10,000. This represents one-half
year’s straight-line depreciation. What is the annual before-tax cash flow from the new
equipment?
55. Rayburn Corporation purchased a new machine for $120,000. The machine has an
estimated useful life of 10-years with no salvage value and a return on investment (ROI) of 15%.
ROI is computed using annual cash flows and straight-line depreciation. What is the annual cash
flow using the gross book value method?
56. The Najacht Division of the Rassbach Company has a return on investment (ROI) of 12%,
sales of $200,000, and an asset turnover of 2.0. What was Najacht’s operating income?
57. The following information is available for Company X:
What is Company X’s return on investment (ROI)?
58. The FGH Company has an asset turnover of 3.0 times, using assets of $45,000. The
company also has a return on investment (ROI) of 20%. What was the company’s operating profit
margin?
59. The FGH Company has an asset turnover of 3.0 times, using assets of $45,000. The
company also has a return on investment (ROI) of 20%. If the residual income was $2,250, what
was the company’s cost of capital?
60. In 2012, Wishbone Corporation had an operating profit of $750,000 and a residual income
of $300,000. If Wishbone’s cost of capital is 15%, what is the amount of the invested capital?