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    Which of The Following Will Not Improve Return On Investment If Other Factors Remain Constant?

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    Kath Leynes
    The document discusses concepts related to return on investment (ROI), residual income, economic value added, asset turnover, and divisional performance measurement. Specifically: 1) Residual income encourages managers to accept projects that provide returns exceeding the cost of capital and to increase asset turnover and margins. 2) Economic value added uses the firm's cost of capital rather than its minimum rate of return. 3) ROI can be improved by increasing asset turnover, margins, and sales without increasing assets. 4) Divisional performance is often measured using ROI, with internal targets set for minimum required returns on operating assets.

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    Which of The Following Will Not Improve Return On Investment If Other Factors Remain Constant?

    Uploaded by

    Kath Leynes
    67 views3 pages
    The document discusses concepts related to return on investment (ROI), residual income, economic value added, asset turnover, and divisional performance measurement. Specifically: 1) Residual income encourages managers to accept projects that provide returns exceeding the cost of capital and to increase asset turnover and margins. 2) Economic value added uses the firm's cost of capital rather than its minimum rate of return. 3) ROI can be improved by increasing asset turnover, margins, and sales without increasing assets. 4) Divisional performance is often measured using ROI, with internal targets set for minimum required returns on operating assets.

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    c2-3

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    The document discusses concepts related to return on investment (ROI), residual income, economic value added, asset turnover, and divisional performance measurement. Specifically: 1) Residual income encourages managers to accept projects that provide returns exceeding the cost of capital and to increase asset turnover and margins. 2) Economic value added uses the firm's cost of capital rather than its minimum rate of return. 3) ROI can be improved by increasing asset turnover, margins, and sales without increasing assets. 4) Divisional performance is often measured using ROI, with internal targets set for minimum required returns on operating assets.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    67 views3 pages

    Which of The Following Will Not Improve Return On Investment If Other Factors Remain Constant?

    Uploaded by

    Kath Leynes
    The document discusses concepts related to return on investment (ROI), residual income, economic value added, asset turnover, and divisional performance measurement. Specifically: 1) Residual income encourages managers to accept projects that provide returns exceeding the cost of capital and to increase asset turnover and margins. 2) Economic value added uses the firm's cost of capital rather than its minimum rate of return. 3) ROI can be improved by increasing asset turnover, margins, and sales without increasing assets. 4) Divisional performance is often measured using ROI, with internal targets set for minimum required returns on operating assets.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 3

    A.

        standard variable costing income statements


    B.    return on investment
    C.    budgets and standard costs
    D.    residual income

    64.  An advantage of residual income is that it encourages managers to


    A.    accept projects which provide returns in excess of the company's required rate of return
    B.    to increase asset turnover
    C.    attempt to increase the margin
    D.    all of the above

    Economic value added


    60.  In contrast to residual income (RI), economic value added (EVA) uses:
    A.    the firm's minimum rate of return instead of its cost of capital.
    B.    the firm's cost of capital instead of its minimum rate of return
    C.    a required rate of return.
    D.    values determined by using conventional accounting policies

    68.  Which of the following would promote goal congruence?


    A.    return on investment                                       C.    single measures of performance
    B.    income based compensation                         D.    economic value added

    Sensitivity Analysis
    Return on investment
    45.  Assuming that sales and net income remain the same, a company’s return on investment will
    A,    Increase if invested capital increases
    B.    Decrease if invested capital decreases
    C.    Decrease if the invested capital-employed turnover rate decreases
    D.    Decrease if the invested capital-employed turnover rate increases

    52.  The other things remaining constant, if a division doubles its investment turnover, its ROI will
    A.    decrease                                                           C.    remain constant
    B.    increase                                                            D.    double

    54.  Other factors remaining unchanged, the rate of return on investment may be improved by
    A.    increasing investment in assets.
    B.    increasing expenses.
    C.    reducing sales
    D.    decreasing investment in assets.

    56.  Which of the following will not improve return on investment if other factors remain constant?
    A.    Increasing sales volume while holding fixed expenses constant.
    B.    Decreasing assets.
    C.    Increasing selling prices.
    D.    None of the above.

    57.  Assuming that sales and net income remain the same, a company’s return on investment (ROI) would
    A.    increase if the invested capital-employed turnover rate decreases.
    B.    Increase if the invested capital-employed turnover rate increases.
    C.    Increase if invested capital increases.
    D.    Decrease if invested capital decreases.

    63.  To improve asset turnover in conjunction with ROI computations,


    A.    sales may be increased                                 C.    assets may be decreased
    B.    assets may be increased                               D.    a and c

    66.  How can an investment center improve its return on investment (ROI)?


    A.    increase margin, increase investments
    B.    decrease margin, decrease turnover
    C.    increase margin, increase turnover
    D.    decrease margin, increase investments

    Economic value added


    67.  Economic value added would decrease if:
    A.    operating income increases
    B.    the division invests in a project wherein the after-tax operating income is more than the cost of capital
    C.    operating expenses increase
    D.    cost of capital decreases

    Estimating Current Market Value of Assets


    47.  Which of the following is NOT a method for developing or estimating the current market value of assets?
    A.    Gross Book Value.                                          C.    Liquidation Value.
    B.    Replacement Cost.                                          D.    Economic Value Added.

    Comprehensive
    18.  Which of the following is not a true statement?
    A.    Many costs are controllable at some level with a company.
    B.    Responsibility accounting applies to both profit and not-for-profit entities.
    C.    Fewer  costs  are  controllable  as  one  moves  up  to  each  higher  level  of  managerial responsibility.
    D.    The term segment is sometimes used to identify areas of responsibility in decentralized operations.

    PROBLEMS:
    DuPont Model
    Return on sales
    [i].      The Dela Merced Company’s Household Products Division reported in 2007 sales of P15,000,000, an
    asset turnover ratio of 3.0, and a rate of return on average assets of 18 percent.  The percentage of net
    income to sales is
    A.    6 percent.                                                          C.    3 percent
    B.    12 percent.                                                        D.    5 percent.

    Return on assets
    Required unit sales
    [ii].      The Valve Division of Industrial Company produces a small valve that is  used by various companies
    as a component part in their products.  Industrial Company operates its divisions as autonomous units,
    giving its divisional manager great discretion in pricing and other decisions.  Each division is expected to
    generate a rate of return of at least 14 percent on its operating assets.  The Valve Division has average
    operating assets of P700,000.  The valves are sold for P5 each.  Variable costs are P3 per valve, and
    fixed costs total P462,000 per year.  The Division has a capacity of 300,000 units.
    How many valves must the Valve Division sell each year to generate the desired rate of return on its
    assets?
    A.    280,000                                                             C.    355,385
    B.    350,000                                                             D.    265,000

    Divisional ROI
    [iii].     Marsh Company that had current operating assets of one million and net income of P200,000 had an
    opportunity to invest in a project that requires an additional investment of P250,000 and increased net
    income by P40,000. After the investment, the company's ROI will be
    A.    16.0%                                                                C.    19.2%
    B.    18.0%                                                                D.    20.2%

    [iv].     The following data relate to the Motor Division of Eurosun Company:


    Sales                                                                       P10,000,000
    Variable costs                                                                 3,000,000
    Direct fixed costs                                                             5,000,000
    Invested capital                                                               8,000,000
    Allocated actual interest costs                                                  800,000
    Capital charge                                                                      12%
    The divisional return on investment is:
    A.    15 percent                                                         C.    13 percent
    B.    25 percent                                                         D.    20 percent

    Required sales
    [v].      The manager of the Mac Division of Power Company expects the following results in 2006  (pesos in
    millions):
    Sales                                                                             P49.60
    Variable costs (60%)                                                               29.76
    Contribution margin                                                              P19.84
    Fixed costs                                                                         12.00
    Profit                                                                              P 7.84
    Investment:
    Plant equipment                                                 P19.51
    Working capital                                                 14.88                  P34.39

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