Question : 71.Canal Toweris a division of Sounder Products. For the most : 1302899

 

 

71.Canal Toweris a division of Sounder Products. For the most recent year, Canal Towerhad net income of $16,000,000. Included in income was interest expense of $1,200,000. The operation’s tax rate is 40 percent. Total assets of Canal Towerare $225,000,000, current liabilities are $40,000,000, of which $35,000,000 are noninterest-bearing. How much is return on investment for Canal Tower?

A.8.0%

B.8.8%

C.9.1%

D.7.4%

 

72.Consider the following information for Haley and Morris, Inc.

 

December 31

20132014

Total assets$40,000,000$50,000,000

Noninterest-bearing current liabilities800,0001,400,000

Net income2,600,0003,400,000

Interest expense300,000400,000

Tax rate30%30%

 

How much is the return on investment for 2014?

A.7.57%

B.7.24%

C.6.42%

D.7.82%

73.The manager of the Beach Division of Treat Timeisevaluating the acquisition of a new mobile ice cream server. The budgeted operating income of the BeachDivision is currently$2,940,000 with total assets of $28,600,000 and noninterest-bearing current liabilities of $600,000. The proposed investment would add $18,000 to operating income and would require an additional investment of $120,000. The targeted rate of return for the BeachDivision is 9 percent. Ignoring taxes, how much is the return on investment of the BeachDivision if the ice cream serverisnot purchased?

A.15.0%

B.10.5%

C.10.2%

D.9.73%

 

74.The manager of the Beach Division of Treat Time is evaluating the acquisition of a new mobile ice cream server. The budgeted operating income of the Beach Division is currently $2,940,000 with total assets of $28,600,000 and noninterest-bearing current liabilities of $600,000. The proposed investment would add $18,000 to operating income and would require an additional investment of $120,000. The targeted rate of return for the Beach Division is 9 percent. Ignoring taxes, how much is the return on investment of the BeachDivision if the ice cream server is purchased?

A.10.52%

B.15.00%

C.10.56%

D.12.75%

 

75.The manager of the WestDivision of Beach Clothing Company is evaluating the acquisition of a new embroidery machine. The budgeted operating income of the WestDivision was $4,000,000 with total assets of $22,000,000 and noninterest-bearing current liabilities of $1,000,000. The proposed investment would add $750,000 to operating income and would require an additional investment of $3,500,000. The targeted rate of return for the WestDivision is 14 percent and the cost of capital is 9 percent. Ignoring taxes, how much is the residual income of the Westdivision if the embroidery machine is not purchased?

A.$202,000

B.$1,930,000

C.$2,110,000

D.$1,060,000

 

76.The manager of the West Division of Beach Clothing Company is evaluating the acquisition of a new embroidery machine. The budgeted operating income of the West Division was $4,000,000 with total assets of $22,000,000 and noninterest-bearing current liabilities of $1,000,000. The proposed investment would add $750,000 to operating income and would require an additional investment of $3,500,000. The targeted rate of return for the West Division is 14 percent and the cost of capital is 9 percent. Ignoring taxes, how much is the residual income of the West division if the embroidery machine is purchased?

A.$2,545,000

B.$1,320,000

C.$2,860,000

D.$4,456,000

 

77.If a manager is evaluated using the return on investment, the manager may be reluctant to invest in new equipment because the additional investment

A.may reduce profit by the cost of the investment.

B.will decrease the level of assets.

C.may decrease the return on investment.

D.may increase investment turnover.

 

78.Which of the following statements is true?

I.Managers have a tendency to overinvest when return on investment is used as a performance measure.

II.Managers have a tendency to underinvest when profit is used as a performance measure.

A.I only

B.II only

C.Both I and II

D.Neither I nor II

 

79.A manager is evaluated based on return on investment. The corporate minimum required return is 11 percentand the manager runs a division that has attained a 14 percentreturn on investment.Which of the following statements is true?

A.The manager will most likely not invest in a project that hasa return on investmentof 13 percent.

B.The manager willinvest in all projects that increase operating income.

C.The manager willnotconsider projects that exceed 14 percent.

D.The manager may prefer to invest in projects that have a return on investment that is very close 11 percent to stay in line with corporate expectations.

 

80.An adjustment is made to net income when calculating residual income to remove

A.noninterest-bearing current liabilities.

B.interest and the related tax effect.

C.financing costs that the manager is able to control.

D.accounting distortions.

 

 

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