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84. The greatest advantage of using a negotiated transfer price is:
85. The
most likely
result of using a negotiated transfer price is that:
86. All of the following represent a way of calculating ROI (return on investment) for a
division except:
87. The primary limitation of using Economic Value Added (EVA®) to evaluate the financial
performance of investment centers is:
88. EVA® (economic value added):
89. Which of the following specifications for calculating EVA® is correct?
90. Which of the following statements regarding the calculation of Economic Value Added
91. A segment of an organization is referred to as an
investment center
if it has:
92. A company currently earning a profit can increase its return on investment (ROI) by:
93. Which one of the following statements pertaining to the return on investment (ROI) as a
performance measure is incorrect?
94. The basic objective of the residual income (RI) approach to performance measurement of
a business unit considered an investment center is to have the investment center maximize its:
95. Under the notion of controllability, it is appropriate to evaluate the profitability of each
investment center based on each center's:
96. Compared to return on investment (ROI), residual income (RI) may be a better measure
of the financial performance of an investment center because:
97. A primary characteristic of a
negotiated transfer price
is that it:
98. Return on investment (ROI) can be directly increased by:
99. The major criticism of using return on investment (ROI) for evaluating the financial
performance of business units considered investment centers is that ROI:
100. Assume that an organization's weighted-average cost of capital (minimum rate of return)
is 8% and that Division A currently has a 12% return on investment (ROI). The manager of
Department A, who is evaluated on the basis of divisional ROI, would
most likely
accept an
investment that is expected to return:
101. Economic value added (EVA®) for a division:
102. An appropriate transfer price between two divisions of The Stark Company can be
determined from the following data:
Fabricating Division:
Market price of the subassembly $50
Variable cost of the subassembly $20
Excess capacity (in units) 1,000
Assembly Division:
Number of units needed 900
What is the natural bargaining range for the two divisions?
103. Decentralized firms can delegate authority and yet retain control and monitor managers'
performances by structuring the organization into so-called "responsibility centers." Which one of
the following business segments/responsibility centers is most like an independent business?
104. Which one of the following statements pertaining to the return on investment (ROI) as a
divisional performance measure is incorrect?
105. Managerial performance can be measured in various ways, including return on
investment (ROI) and residual income (RI). A good reason for using RI rather than ROI is:
106. Return on investment (ROI), residual income (RI), and Economic Value Added (EVA®) all
have in common which one of the following characteristics?
107. The basic objective of the residual income (RI) approach to divisional performance
measurement and evaluation is to have a division maximize its:
108. Which of the following items would most likely not be incorporated into the calculation of
a division's investment base when using the residual income (RI) or the return on investment
(ROI) approach for performance measurement and evaluation?
109. Which of the following is a true about return on investment (ROI)?
110. Residual income (RI) may be a better measure for performance evaluation of an
investment center manager than is the return on investment (ROI) metric because:
111. Which of the following is not a criticism of using return on investment (ROI) for divisional
performance evaluation?
112. Listed below is selected financial information for the Western Division of the Henzel
Company for last year:
Account Amount (thousands)
Average working capital $625
General and administrative expenses 75
Net sales 4,000
Average plant and equipment 1,775
Cost of goods sold 3,525
If Henzel treats the Western Division as an investment center for performance evaluation
purposes, what is the before-tax return on investment (ROI) for last year? (Round your answer to
two decimal places.)
