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34.
The following information was presented by User-Friendly Industries Company for an
asset purchased at the end of the previous year.
Original cost of the asset
$20,000
Useful life of the asset
10
years
Annual operating profit, including
depreciation
$4,000
Salvage value
$-0-
35.
The following information was presented by Outdoors Manufacturing Company for an
asset purchased at the end of the previous year.
Original cost of the asset
$20,000
Useful life of the asset
10 years
Cashflow annual operating profit
$4,000
Salvage value
$-0-
36.
The following information was presented by Shower Wonder Enterprises for an asset
purchased at the beginning of the previous year.
Original cost of the asset
$20,000
Useful life of the asset
10 years
Cashflow annual operating profit
$4,000
Salvage value
$-0-
37.
Garage 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?
38.
39.
The Nacho Division of the Tex-Mex Company has a return on investment (ROI) of 12%,
sales of $200,000, and an asset turnover of 2.0. What was Nacho's operating income?
40.
The following information is available for Sweet Dreams Company:
Sales
$100,000
Operating expenses
$94,000
Operating assets
$40,000
Stockholder’s equity
$25,000
Cost of capital
10%
What is Sweet Dreams Company's return on investment (ROI)?
41.
The Gallop 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 Gallop's operating profit
margin?
42.
How will decreases in the following items affect return on investment (ROI)?
Sales
Equipment
A.
Decrease
Decrease
B.
Decrease
Increase
C.
Increase
Decrease
D.
Increase
Increase
43.
A firm earning a profit can increase its return on investment by: (CMA adapted)
44.
Return on investment (ROI) is a very popular measure employed to evaluate the
performance of corporate segments because it incorporates all of the major ingredients of
profitability (revenue, cost, investment) into a single measure. Under which one of the
following combinations of actions regarding a segment's revenues, costs, and investment
would a segment's ROI always increase? (CIA adapted)
Sales
Equipment
Investment
A.
Increase
Decrease
Increase
B.
Decrease
Decrease
Decrease
C.
Increase
Increase
Increase
D.
Increase
Decrease
Decrease
45.
The following information pertains to Artemis Co. for the year ended December 31: (CPA
adapted)
Sales
$600,000
Income
$100,000
Capital investment
$400,000
Which of the following equations should be used to compute Artemis' return on
investment (ROI)?
46.
The following information pertains to Zootime Co.'s Shelter Division for the current year:
(CPA adapted)
Sales
$311,000
Variable cost
$250,000
Traceable fixed costs
$50,000
Average invested capital
$40,000
Imputed interest rate
10%
47.
A division earning a profit will increase its return on investment (ROI) if it increases
operating expenses and:
48.
In computing the margin in a ROI analysis, which of the following is used?
49.
In determining the dollar amount to use for operating assets in the return on investment
(ROI) calculation, companies will generally use either net book value or gross cost of the
assets. Which of the following is an argument for the use of net book value rather than
gross cost?
50.
Average operating assets are $110,000 and net operating income is $23,100. The company
invests $25,000 in new assets for a project that will increase net operating income by
$4,750. What is the return on investment (ROI) of the new project?
51.
52.
Sales and average operating assets for Wyeth Company and Genesis Company are given
below:
Sales
Average Operating
Assets
Wyeth
Company
$20,000
$8,000
Genesis
Company
$50,000
$10,000
What is the margin that each company will have to earn in order to generate a return on
investment of 20%?
53.
Rex Company's sales last year totaled $150,000 and its return on investment (ROI) was
12%. If the company's turnover was 3, then its net operating income for the year must
have been:
14-39
54.
The Dry Wall Division reports the following operating data for the past two years:
Year 1
Year 2
Margin
16%
?
Turnover
2.5
2
Average operating assets
?
$150,000
Net operating income
$40,000
?
Stockholders’ equity
$80,000
$125,000
Sales
?
?
55.
The Dry Wall Division reports the following operating data for the past two years:
Year 1
Year 2
Margin
16%
?
14-40
Turnover
2.5
2
Average operating assets
?
$150,000
Net operating income
$40,000
?
Stockholders’ equity
$80,000
$125,000
Sales
?
?
56.
The Dry Wall Division reports the following operating data for the past two years:
Year 1
Year 2
Margin
16%
?
Turnover
2.5
2
Average operating assets
?
$150,000
Net operating income
$40,000
?
Stockholders’ equity
$80,000
$125,000
