16) The EVA calculation and the ROI calculation both use operating income before income tax because the income tax expense is NOT relevant to either the EVA or the ROI measures.
17) Marcia Consumer Products has several divisions, including the Education Division and the Recreation Division. Data on the two divisions are shown here:
|
Education Division
|
Recreation Division
|
Current ROI
|
9.2%
|
10.0%
|
Current WACC
|
8.0%
|
8.0%
|
Operating income
|
$110,000
|
$200,000
|
Effective tax rate
|
20.0%
|
20.0%
|
Average total assets
|
$1,200,000
|
$2,000,000
|
Current liabilities
|
$30,000
|
$30,000
|
These data show that the Recreation Division has generated returns in excess of those expected by the investors and creditors, but the Education Division has not.
18) Corporate divisions, like the media division of Amazon.com, are normally considered:
A) cost centers.
B) revenue centers.
C) profit centers.
D) investment centers.
19) Which of the following statements BEST describes the responsibilities of the head of an investment center?
A) He or she is mainly responsible for controlling costs.
B) He or she is responsible for maximizing income and using assets efficiently.
C) He or she is responsible chiefly for achieving as much operating income as possible.
D) He or she is responsible solely for the efficient and productive use of invested assets.
20) An investment center is responsible for new investments. Which of the following is a good example of the kind of investments for which an investment center is responsible?
A) Purchasing raw materials for production
B) Creating a new product line with separate manufacturing facilities
C) Replacing worn-out manufacturing equipment
D) Performing maintenance work on facilities
21) To evaluate the performance of an investment center, a business needs KPIs that measure:
A) manufacturing productivity and product defect rate.
B) operating income and the efficient use of assets.
C) customer satisfaction and market share.
D) generation of sales revenues and control of operating expenses.
22) Investment centers need KPIs to evaluate how efficiently the business unit uses assets. Typical KPIs of this type would include all of the following EXCEPT:
A) ROI (Return on investment).
B) EVA (Economic value added).
C) NOI (Net operating income).
D) RI (Residual Income).
23) Which of the following KPIs are used to evaluate how efficiently a business unit uses assets?
A) Sales revenue growth
B) Percentage of market share
C) Residual income
D) Production efficiency
24) Which of the following KPIs are used to evaluate how efficiently a business unit uses assets?
A) Return on investment
B) Defect rate
C) Employee satisfaction
D) Production efficiency
25) Which of the following KPIs are used to evaluate how efficiently a business unit uses assets?
A) Hours of employee training
B) Defect rate
C) New product development time
D) Economic value added