Question :
41) A company has total assets of $500,000, a required : 1186238
41) A company has total assets of $500,000, a required rate of return of 10%, and operating income for the year was $200,000. What is the residual income?
A) $150,000
B) $200,000
C) $250,000
D) $480,000
E) $175,000
42) Which of the following performance measures is more likely to promote goal congruence?
A) inventory turnover
B) marginal income
C) residual income
D) return on investment
E) contribution margin
43) The Auto Division of Fran Corporation has $2.5 million in total assets and $200,000 in liabilities, while the Transportation Division has $5 million in total assets and $3 million in liabilities. What are the imputed costs of the Auto division and of the Transportation division, respectively, if the corporation has a required rate of return of 11%?
A) $275,000 and $550,000
B) $253,000 and $330,000
C) $297,000 and $880,000
D) $275,000 and $330,000
E) $200,000 and $3,000,000
44) Miller Medical Services provided the following information for its operations in the Hospital Bed Division.
Revenues
$2,000,000
Accounts receivable
500,000
Required rate of return
11%
Operating assets
1,500,000
Net operating income
800,000
Taxable income
520,000
Total assets
$6,500,000
What is the Hospital Bed’s residual income?
A) $30,000
B) $85,000
C) <$195,000>
D) $1,285,000
E) <$250,000>
45) Which of the following is not a reason for evaluating subunits over a multi-year time horizon?
A) Benefits of actions taken in the current period may not show up in a short-term performance measure.
B) Managers may curtail R & D or plant maintenance in order to increase short-term results.
C) Investments may actually decrease ROI and or RI in the short-term.
D) The NPV of the cash flows over the life of an investment equals [total assets ÷ ROI].
E) Investments may actually decrease ROI and or RI in the short-term, and benefits of actions taken in the current period may not show up in a short-term performance measure.
Use the information below to answer the following question(s).
Brandorf Company has two sources of funds: long term debt with a market and book value of $9 million issued at an interest rate of 10 percent; and, equity capital that has a market value of $6 million (book value of $2 million). The cost of equity capital is 5 percent, while the tax rate is 30 percent. Brandorf Company has profit centres in the following locations with the following data:
Total
Operating
Income
Total
Assets
Current
Liabilities
Ottawa
$480,000
$2,000,000
$100,000
St. Johns
$600,000
$4,000,000
$300,000
Regina
$1,020,000
$6,000,000
$600,000
46) What is EVA for Ottawa?
A) $218,200
B) $42,600
C) $163,200
D) $480,000
E) $140,000
47) What is EVA for St. Johns?
A) $142,200
B) $190,600
C) $163,200
D) $200,000
E) $145,000
48) What is EVA for Regina?
A) $685,200
B) $342,000
C) $379,200
D) $648,000
E) $218,200
49) A company’s weighted-average cost of capital [WACC] was 9.6% last year. The company has $6,000,000 of bonds payable (its only debt) with a 9.25% coupon, and has $9,000,000 in equity capital. The tax rate is 35%.
What is the company’s cost of debt funding? (two decimal places only)
A) 6.01%
B) 6.25%
C) 6.50%
D) 9.25%
E) 12.00%
50) A company’s weighted-average cost of capital [WACC] was 9.6% last year. The company has $6,000,000 of bonds payable (its only debt) with a 9.25% coupon, and has $9,000,000 in equity capital. The tax rate is 35%.
What is the company’s cost of equity capital? (two decimal places only)
A) 6.00%
B) 6.25%
C) 6.50%
D) 9.25%
E) 12.00%
