Question : 41) A corporation has a required rate of return [RRR] of : 1196216

 

41)

A corporation has a required rate of return [RRR] of 13% for all subsidiaries. They have determined that the 13% is too high for a new subsidiary, which earned residual income of $200,000 in year 1, and $300,000 in year 2. Operating income for the new subsidiary (established with an investment of $4,500,000), was $750,000 for year 1 and $650,000 for year 2. What rate of return did the new subsidiary earn in years 1 and 2 respectively? 41)

______ A)

12.22% and 7.77% B)

10.00% and 7.77% C)

12.22% and 13.00% D)

10.00% and 10.00% E)

13.00% and 10.00%

42)

What disadvantage is there in using ROI and/or RI as performance measures? 42)

______ A)

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

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. C)

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

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

A manager’s bonus will decrease when ROI decreases.

43)

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? 43)

______ A)

$150,000 B)

$250,000 C)

$175,000 D)

$480,000 E)

$200,000

44)

Which of the following performance measures is more likely to promote goal congruence? 44)

______ A)

residual income B)

marginal income C)

return on investment D)

inventory turnover E)

contribution margin

45)

Berger Publishing has two divisions which operate autonomously. Their results for 2001 were as follows:

 

TorontoVancouver

Sales$5,000,000$6,000,000

Contribution margin2,500,0003,000,000

Operating income2,000,0003,500,000

Investment base 6,500,0007,500,000

 

The company’s desired rate of return is 15%.

 

What are the respective residual incomes for the Toronto and Vancouver divisions? 45)

______ A)

$1,025,000; $1,125,000 B)

$1,075,000; $1,125,000 C)

$1,025,000; $2,375,000 D)

$2,375,000; $1,025,000 E)

$975,000; $1,125,000

46)

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%? 46)

______ A)

$253,000 and $330,000 B)

$275,000 and $550,000 C)

$297,000 and $880,000 D)

$200,000 and $3,000,000 E)

$275,000 and $330,000

47)

Miller Medical Services provided the following information for 2001 operations in their Hospital Bed Division.

 

Revenues$2,000,000

Accounts receivable500,000

Required rate of return11%

Operating assets1,500,000

Net operating income800,000

Taxable income520,000

Total assets$6,500,000

 

What is the Hospital Bed’s residual income? 47)

______ A)

$30,000 B)

$85,000 C)

<$250,000> D)

$1,285,000 E)

<$195,000>

48)

The top management at Munchie Company, a manufacturer of computer games, is attempting to recover from a flood, which destroyed some of their accounting records. The main computer system was also severely damaged. The following information was salvaged:

 

Alpha DivisionBeta DivisionGamma 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 0.250.15(d)

Return on sales(e)0.100.5

 

What is the Alpha Division’s return on sales? 48)

______ A)

0.80 B)

0.75 C)

0.25 D)

0.60 E)

0.42

49)

Which of the following is not a reason for evaluating subunits over a multi-year time horizon? 49)

______ A)

Managers may curtail R & D or plant maintenance in order to increase short-term results. B)

The NPV of the cash flows over the life of an investment equals [total assets ÷ ROI]. C)

Investments may actually decrease ROI and or RI in the short-term. D)

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. E)

Benefits of actions taken in the current period may not show up in a short-term performance measure

50)

Miller Medical Services provided the following information for 2001 operations in their Hospital Bed Division.

 

Revenues$2,000,000

Accounts receivable500,000

Total assets 1,500,000

Net operating income 800,000

Taxable income 520,000

 

What is the Hospital Bed Division’s return on sales? 50)

______ A)

1.33 B)

0.53 C)

0.92 D)

2.50 E)

0.00

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 their accounting records. The main computer system was also severely damaged. The following information was salvaged:

 

Alpha DivisionBeta DivisionGamma 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 investment0.250.15(d)

Return on sales(e)0.100.5