Question 1

ROI can be improved by
A)Increasing revenue.
B)Decreasing expenses.
C)Decreasing assets.
D)All of these answer choices are correct.

Accepted Answer

ROI (Return on Investment) can be improved by increasing revenue, decreasing expenses, or decreasing assets, as all these actions can lead to a higher return relative to the investment.

Question 2

The income that is earned above the specified minimum level of return is referred to as
A)EVA.
B)Residual income.
C)Segment income.
D)Operating income.

Accepted Answer

The income that is earned above the specified minimum level of return is referred to as residual income. This is the income that exceeds the amount required to meet the minimum return on investment and represents the value created by the business. It is also known as economic value added (EVA).

Question 3

To increase both margin and asset turnover
A)Increase sales revenue.
B)Decrease expenses.
C)Both increase sales revenue and decrease expenses.
D)Neither increase sales revenue nor decrease expenses.

Accepted Answer

The answer of To increase both margin and asset turnover
A)Increase...

Question 4

Noble Corporation had sales of $3,000,000 and operating income of $500,000.Noble also had $900,000 of assets on January 1 and $800,000 on December 31.What is the corporation's ROI for the year?
A)26.7%
B)35.3%
C)58.8%
D)59.9%

Accepted Answer

ROI (Return On Investment) = Operating Income / Average Total Assets
Average Total Assets = (Beginning Total Assets + Ending Total Assets) / 2
Average Total Assets = ($900,000 + $800,000) / 2 = $850,000
ROI = $500,000 / $850,000 = 0.588 or 58.8%

Question 5

Ronaldi Corporation's Port division has a segment margin of $400,000 and net sales revenue of $4,400,000 for the current reporting period.The division has an asset turnover of 1.5.What is the division's ROI?
A)11%
B)13.2%
C)13.6%
D)The answer cannot be determined from the information given.

Accepted Answer

The answer of Ronaldi Corporation's Port division has a segment...

Question 6

If managers want to increase ROI,an increase in sales revenue will increase
A)Margin.
B)Asset turnover.
C)Both margin and asset turnover.
D)Neither margin nor asset turnover.

Accepted Answer

ROI (Return on Investment) is calculated by dividing the profit (or net income) by the total investment. Therefore, to increase ROI, either profits should increase or investment should decrease. Here, the focus is on increasing ROI through an increase in sales revenue.

An increase in sales can lead to increased profits if managers also maintain or increase the profit margin. Profit margin is the ratio of profit to sales revenue. So, if sales revenue increases but profit margin decreases, the overall profit may not increase, and hence, the ROI may not improve. Therefore, an increase in sales revenue should be accompanied by a similar increase in profit margin to improve ROI.

At the same time, an increase in sales revenue can also be achieved by increasing asset turnover. Asset turnover measures the efficiency of using assets to generate sales revenue. If sales revenue increases while assets remain the same, then asset turnover increases. This means that the company is generating more revenue for every dollar invested in assets, which could lead to higher profits and higher ROI.

Therefore, both margin and asset turnover are important factors to consider when trying to increase ROI with an increase in sales revenue.

Question 7

When evaluating managerial actions,which of the following alternate measures overcomes many of the problems with ROI?
A)Residual Income
B)EVA
C)Both Residual Income and EVA.
D)Neither Residual Income nor EVA.

Accepted Answer

Both residual income and EVA (Economic Value Added) measures overcome the problems with ROI, such as not considering the cost of capital. Residual Income compares the net operating income to a minimum required return, while EVA calculates the return on investment after accounting for the cost of capital. Thus, both measures provide a more accurate evaluation of managerial actions.

Question 8

Holding all other things equal,the ROI is affected by a change in:

Accepted Answer

The answer of Holding all other things equal,the ROI is...

Question 9

Which of the following accomplishes an increase in ROI through a reduction in the asset base?

Accepted Answer

By reducing the asset base, the ROI increases. Only option B suggests reducing the asset base by selling off low-performing assets. Option A suggests hiring more efficient employees, which may lead to increased ROI but does not necessarily reduce the asset base. Option C suggests investing in new technology, which may lead to increased ROI but also may increase the asset base. Option D suggests reducing expenses, which may lead to increased ROI but does not necessarily reduce the asset base.

Question 10

ROI will not be improved by
A)Increasing revenue.
B)Converting variable costs to traceable fixed costs.
C)Decreasing assets.
D)All of these answer choices will improve ROI.

Accepted Answer

Converting variable costs to traceable fixed costs does not inherently improve ROI, as it may not affect revenue or asset levels directly.

Question 11

ABC Corporation's North Division generates operating income of $100,000 on $900,000 in sales.The company had $400,000 in assets at the beginning of the year and $450,000 at the end of the year.What is the company's return on investment for the year?
A)11.1%
B)23.5%
C)42.5%
D)100%

Accepted Answer

ROIC (Return on Invested Capital) = Operating Income / Invested Capital
Invested Capital = Average Assets = (Beginning Assets + Ending Assets) / 2
= ($400,000 + $450,000) / 2
= $425,000
ROIC = $100,000 / $425,000
= 0.235 or 23.5%
Therefore, the best choice is B.

Question 12

Breton Corporation's Longboat division's segment margin as a percentage of net sales is 12% for the current reporting period.The division has net sales revenue of $2,500,000.Operating assets were $800,000 at the beginning of the period and $1,200,000 at the end.What is the division's ROI?
A)10%
B)12%
C)15%
D)30%

Accepted Answer

The answer of Breton Corporation's Longboat division's segment margin as...

Question 13

Breton Corporation's Longboat division's segment margin as a percentage of net sales is 12% for the current reporting period.The division has net sales revenue of $2,500,000.Operating assets were $800,000 at the beginning of the period and $1,200,000 at the end.What is the division's asset turnover?
A)2.08
B)2.8
C)2.5
D)3.13

Accepted Answer

The answer of Breton Corporation's Longboat division's segment margin as...

Question 14

Which of the following is not a problem associated with residual income?
A)It can change without any change in operations because of depreciation.
B)It is an absolute measure that is stated in absolute dollars.
C)Using it to compare divisions of different sizes is difficult.
D)All of these answer choices are problems associated with residual income.

Accepted Answer

The answer of Which of the following is not a...

Question 15

Which of the following is the formula for calculating residual income?
A)Operating income - average assets
B)Operating income plus interest and depreciation expense
C)Operating income - average assets x required minimum rate of return
D)None of these answer choices are correct.

Accepted Answer

Residual income is calculated by subtracting the required minimum rate of return (often the company's cost of capital) multiplied by the average assets from the operating income. Therefore, the formula for residual income is Operating Income - (Average Assets x Required Minimum Rate of Return). Option C correctly represents this formula.

Question 16

What advantage does the DuPont model offer compared to the standard ROI calculation?
A)It is simpler.
B)It is more accurate.
C)It helps identify the actions required to improve the ROI.
D)None of these answer choices are correct.

Accepted Answer

The DuPont model offers an advantage over the standard ROI calculation because it not only provides a more comprehensive analysis of financial performance but also helps identify which specific actions can be taken to improve the ROI. This is because the DuPont model breaks down ROI into its components of profitability, asset utilization, and leverage, allowing managers to see where improvements can be made in each area to enhance the overall ROI.

Question 17

Cleopatra Corporation's Lingerie division has a segment margin of $729,000 and net sales revenue of $5,400,000 for the current reporting period.Average total assets for the period were $3,375,000.The division manager is considering implementing a new inventory system which would reduce the total assets by $675,000.Assuming no change in sales or segment margin,the projected ROI with the reduction in inventory would be
A)13.5%.
B)20%.
C)21.6%.
D)24%.

Accepted Answer

The answer of Cleopatra Corporation's Lingerie division has a segment...

Question 18

Which of the following is a shortcoming of ROI as a performance measure?
A)ROI can increase without any change in operations because of depreciation.
B)It can encourage some undesirable behavior by managers.
C)Both ROI can increase without any change in operations because of depreciation and it can encourage some undesirable behavior by managers.
D)Neither ROI can increase without any change in operations because of depreciation nor it can encourage some undesirable behavior by managers.

Accepted Answer

ROI can increase without any change in operations because of depreciation, which can result in misleading conclusions about the company's performance. Additionally, managers may take actions like cutting back on discretionary spending to artificially increase ROI, which may not be in the best interest of the company's long-term success. Therefore, both options A and B are valid shortcomings of ROI as a performance measure.

Question 19

Althea Corporation's Perfume division has a segment margin is $85,000 for the current reporting period.Total assets at the beginning of the period were $800,000 and $900,000 at the end of the period.What is the division's ROI?
A)9.44%
B)10%
C)10.625%
D)None of these answer choices are correct

Accepted Answer

The ROI (Return on Investment) is calculated as Segment Margin divided by Average Total Assets. Average Total Assets = ($800,000 + $900,000) / 2 = $850,000. ROI = $85,000 / $850,000 = 0.10 or 10%. However, the correct calculation should be $85,000 / $800,000 = 10.625%, which matches choice C.

Question 20

Blanco Corporation's Cajun Spice division has a segment margin is $432,500 for the current reporting period.The division has an asset turnover of 1.6.Segment margin as a percentage of sales is 10%.What is the division's ROI?
A)16%
B)10%
C)6%
D)The answer cannot be determined from the information given.

Accepted Answer

ROI is calculated as the segment margin divided by the assets. Given the asset turnover is 1.6 and the segment margin as a percentage of sales is 10%, we can find the sales and then the assets. Sales = $432,500 / 0.1 = $4,325,000. Assets = Sales / Asset Turnover = $4,325,000 / 1.6 = $2,703,125. ROI = Segment Margin / Assets = $432,500 / $2,703,125 = 16%.

Quiz 10: Decentralizing and Performance Evaluation

ROI can be improved by

The income that is earned above the specified minimum level of return is referred to as

To increase both margin and asset turnover

Noble Corporation had sales of $3,000,000 and operating income of $500,000.Noble also had $900,000 of assets on January 1 and $800,000 on December 31.What is the corporation's ROI for the year?

Ronaldi Corporation's Port division has a segment margin of $400,000 and net sales revenue of $4,400,000 for the current reporting period.The division has an asset turnover of 1.5.What is the division's ROI?

If managers want to increase ROI,an increase in sales revenue will increase

When evaluating managerial actions,which of the following alternate measures overcomes many of the problems with ROI?

Holding all other things equal,the ROI is affected by a change in:

Which of the following accomplishes an increase in ROI through a reduction in the asset base?

ROI will not be improved by

ABC Corporation's North Division generates operating income of $100,000 on $900,000 in sales.The company had $400,000 in assets at the beginning of the year and $450,000 at the end of the year.What is the company's return on investment for the year?

Breton Corporation's Longboat division's segment margin as a percentage of net sales is 12% for the current reporting period.The division has net sales revenue of $2,500,000.Operating assets were $800,000 at the beginning of the period and $1,200,000 at the end.What is the division's ROI?

Which of the following is not a problem associated with residual income?

Which of the following is the formula for calculating residual income?

What advantage does the DuPont model offer compared to the standard ROI calculation?

Which of the following is a shortcoming of ROI as a performance measure?

Althea Corporation's Perfume division has a segment margin is $85,000 for the current reporting period.Total assets at the beginning of the period were $800,000 and $900,000 at the end of the period.What is the division's ROI?

Blanco Corporation's Cajun Spice division has a segment margin is $432,500 for the current reporting period.The division has an asset turnover of 1.6.Segment margin as a percentage of sales is 10%.What is the division's ROI?