46) Huntswell Corporation has two major divisions: Agricultural Products and Industrial Products. Data for the year just finished is as follows:
|
Agriculture Division
|
Industrial Division
|
Sales revenue
|
$140,000
|
$1,040,000
|
Operating income
|
$16,400
|
$220,000
|
Average assets
|
$300,000
|
$5,540,000
|
Target rate of return
|
4.0%
|
4.0%
|
For the Industrial Division, how much is the residual income?
A) $2,400
B) $1,650
C) ($200)
D) ($1,600)
47) Which of the following statements MOST accurately explains a positive residual income?
A) A division has produced more operating income than the target set by upper management.
B) A division has generated positive operating income.
C) A division has been liquidated, and there is some residual amount of income earned after the liquidation.
D) A division has recorded a profit on sales of plant equipment which was sold for higher than its residual value.
48) The EVA is a way of looking at a division's performance from the point of view of the:
A) managers.
B) employees.
C) shareholders and creditors.
D) suppliers.
49) Which of the following statements MOST accurately describes a company's weighted average cost of capital?
A) The interest rate charged to the company for long-term debt
B) The amount a company incurs for capital expenditures
C) The minimum rate of return required by its investors
D) The average of beginning assets and ending assets
50) Which of the following statements is TRUE about the weighted average cost of capital (WACC)?
A) If a business has a high risk level, the WACC will be higher.
B) If a business has a high risk level, the WACC will be lower.
C) The WACC represents the corporation's internal return targets.
D) The WACC is the same as a business's ROI.
51) 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
|
How much is the EVA for the Education Division?
A) $12,890
B) $4,600
C) ($5,600)
D) ($12,750)
52) 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
|
How much is the EVA for the Recreation Division?
A) $1,890
B) $2,400
C) ($1,300)
D) ($2,950)
53) For the calculation of EVA, current liabilities are deducted from total average assets for what reason?
A) Because liabilities are not included in assets, and so they should be deducted.
B) Because the current liabilities are due within a one year period.
C) Because it is necessary in order to calculate the equity of the company.
D) Because the funds needed to pay the current liabilities will not be available to generate income in the long run.
54) One of the key drawbacks of using financial KPIs like ROI and EVA is that:
A) they are difficult and complex to calculate.
B) they change from period to period.
C) they cannot be readily compared to other companies.
D) they focus only on the short term.
55) A key benefit of using the balanced scorecard to evaluate business performance is that:
A) it is simple to implement.
B) individual performance measures each have their limitations; the balanced scorecard gives a broader picture of performance.
C) it is limited to financial measures, and so it keeps the focus on the "bottom line".
D) it is a standardized measure, and so it can be readily used to compare companies in different industries on a consistent basis.