Question :
51. Which of the following statements regarding ROI computations true? A. Net income : 1295683
51. Which of the following statements regarding ROI computations is true? A. Net income after interest and taxes is most frequently used as the measure of income in the ROI formula.B. The fair market value of assets without regard to depreciation is used as a measure of operating assets in the ROI formula.C. Assets used in the ROI formula are generally measured as an average of beginning and end of period numbers.D. All assets, including those that are idle or held for resale, are included in the ROI formula.
52. Residual income: A. is most useful as a way to compare individual divisions of different sizes.B. is the amount of income earned in excess of a predetermined minimum rate of return on assets.C. should not be used as a way to evaluate the manager of an investment center.D. is often called economic value added (EVA).
53. Which of the following is the correct formula to compute residual income? A. Average operating assets – Net operating incomeB. Average operating assets – (Net operating income ´ Minimum required rate of return)C. Net operating income ´ Minimum required rate of returnD. Net operating income – (Average operating assets ´ Minimum required rate of return)
54. Duncan Ltd. has the following information available for one its divisions in the current year:
Sales revenue
$6,000,000
Operating expenses
3,800,000
Average operating assets
2,000,000
Duncan requires each of its divisions to generate a minimum return of 25%. What is this division’s residual income? A. $ 200,000B. $1,450,000C. $1,700,000D. $5,500,000
55. Shannon Pharmaceuticals has the following information available for one its divisions in the current year:
Sales revenue
$10,000,000
Operating expenses
4,500,000
Average operating assets
4,000,000
The company requires each of its divisions to generate a minimum return of 30%. What is this division’s residual income? A. $1,500,000B. $4,300,000C. $2,350,000D. $8,800,000
56. ABC Inc. has the following information available for one of its divisions:
Average operating assets
$5,000,000
Return on investment (ROI)
40%
Sales
$8,000,000
If ABC requires a minimum return on its investments of 25%, what is their residual income? A. $1,950,000B. $4,500,000C. $6,750,000D. $ 750,000
57. Economic value added (EVA): A. is another term for ROI.B. is a measure of shareholder wealth creation.C. is outdated and has been replaced with the computation of residual income.D. should never be used to motivate desired behaviors in managers.
58. What should be multiplied by the weighted-average cost of capital in the computation of economic value added (EVA)? A. After-tax operating profitB. Before-tax operating profitC. Total assets – current liabilitiesD. Total assets + current liabilities
59. When calculating economic value added (EVA), which of the following statements is true regarding the weighted-average cost of capital? A. It should include only the cost of debt financing.B. It should include only the cost of equity financing.C. It should include the cost of both debt and equity financing.D. It should be the same as the company’s return on investment (ROI).
60. Roanoke Products Inc. has been asked by its shareholders to calculate the economic value added (EVA) for the current year. Roanoke’s controller has the following information available:
Before-tax profit
$1,200,000
Total assets
4,000,000
Current liabilities
600,000
Average interest rate on debt
8%
Average tax rate
28%
The company’s EVA is: A. $592,000B. $928,000C. $ 64,000D. $496,000