Question : 31) An automotive dealership, with a book value of $3,000,000, : 1186237

 

31) An automotive dealership, with a book value of $3,000,000, and total assets of $5,000,000, has a long history of earning 18%. Last year, the company earned $900,000. The owner is considering acquiring another dealership in a nearby town. If the expansion increases income by 50%, what is the maximum amount of investment the owner can make in the new dealership in order to maintain his desired 18% return?

A) $1,350,000

B) $9,000,000

C) $5,000,000

D) $3,000,000

E) $2,500,000

32) The Dupont method of profitability analysis is

A) TA – CL / operating income

B) ROI × WACC

C) [revenue / investment] × [income / revenue]

D) ROI / WACC

E) ROI × RI

 

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:

 

 

Alpha Division

Beta Division

Gamma Division

Sales

$2,500,000

(a)

$1,150,000

Net operating income

$1,500,000

$650,000

$575,000

Total assets

(b)

(c)

$766,667

Return on investment

0.25

0.15

(d)

Return on sales

(e)

0.10

0.5

 

33) What is the value of the total assets belonging to the Alpha Division?

A) $4,333,333

B) $6,000,000

C) $6,500,000

D) $7,151,800

E) $6,434,434

 

34) What is the value of the total assets belonging to the Beta Division?

A) $4,333,333

B) $5,952,380

C) $6,500,000

D) $7,151,800

E) $4,654,252

35) What is the Alpha Division’s return on sales?

A) 0.25

B) 0.42

C) 0.60

D) 0.75

E) 0.80

 

36) What were the sales for Beta Division?

A) $4,333,333

B) $5,952,380

C) $6,500,000

D) $7,151,800

E) $6,326,787

 

37) What is the Gamma Division’s return on investment?

A) 0.25

B) 0.42

C) 0.60

D) 0.75

E) 0.80

 

38) Costs recognized in particular situations that are not recognized by accrual accounting procedures are

A) opportunity costs.

B) imputed costs.

C) cash accounting costs.

D) incremental costs.

E) capital costs.

39) A corporation has a required rate of return of 13% for all subsidiaries. The Calgary subsidiary earned residual income of $200,000 in year 1, and $300,000 in year 2 on an investment base of $4,500,000. What rate of return did the Calgary subsidiary earn in years 1 and 2 respectively?

A) 17.4% and 19.7%

B) 4.4% and 6.7%

C) 13.0% and 13.0%

D) 7.9% and 10.9%

E) 10.00% and 13.00%

 

40) What disadvantage is there in using ROI and/or RI as performance measures?

A) A manager’s bonus will decrease when ROI decreases.

B) ROI may decrease when business expands if income does not increase in line with the new investment.

C) RI and ROI are both single-period measures.

D) RI is measured in absolute dollars but ROI is in percentages.

E) Imputed costs that are deducted in the RI calculation, are not recognized in accrual accounting, and are therefore not included in the operating figure used in calculating ROI.