Quiz 6

Question 1

Many common performance measures, such as customer satisfaction, rely on internal financial accounting information.

Answer 1

F

Customer satisfaction would be obtained by surveys that are not in the financial accounting records.

Question 2

Evaluating an executive’s performance using the annual return on investment would sharpen an executive’s long-run focus.

Answer 2

F

Using return on investment is a short-run tool.

Question 3

A major weakness of comparing two companies using only operating incomes as the basis of comparison is this method ignores differences in the size of the investment required to earn the operating income.

Answer 3

T

Question 4

Return on investment is also called the accrual accounting rate of return.

Answer 4

T

Question 5

The objective of maximizing return on investment may induce managers of highly profitable divisions to reject projects that from the viewpoint of the overall organization should be accepted.

Answer 5

T

Question 6

Goal congruence is more likely to be promoted by using return on investment rather than residual income as a measure of a subunit’s managerial performance.

Answer 6

F

Goal congruence is more likely to be promoted by using residual income rather than return on investment.

Question 7

Investment turnover is calculated by dividing investments by revenues.

Answer 7

F

Investment turnover is calculated by dividing revenues by investments

Question 8

Residual income calculations are similar to EVA® calculations because in each calculation there is a charge for the division’s invested capital which is deducted from a measure of that division’s profit

Answer 8

T

Question 9

Economic value added, unlike residual income, charges managers for the costs of their investments in long-term assets and working capital.

Answer 9

F

Both economic value added and residual income charge managers for the costs of their investments in long-term capital.

Question 10

In an Economic Added Value calculation, the corporate charge for a division’s investment is based entirely on the after-tax interest rate on the firm’s debt.

Answer 10

f

Question 11

A report that measures financial and nonfinancial performance measures for various organization units in a single report is called a(n):

a. balanced scorecard
b. financial report scorecard
c. imbalanced scorecard
d. unbalanced scorecard

Answer 11

A

Question 12

During the past twelve months, the Aaron Corporation had a net income of $50,000. What is the amount of the investment if the return on investment is 20%?

a. $100,000
b. $200,000
c. $250,000
d. $500,000

Answer 12

C

Question 13

Return on investment can be increased by:

a. increasing operating assets
b. decreasing operating assets
c. decreasing revenues
d. Both b and c are correct.

Answer 13

B

Question 14

After-tax operating income minus the after-tax weighted-average cost of capital multiplied by total assets minus current liabilities equals:

a. return on investment
b. residual income
c. economic value added
d. weighted-average cost of capital

Answer 14

C

Question 15

The after-tax average cost of all the long-term funds used by a corporation equals:

a. economic value added
b. return on investment
c. return on equity
d. weighted-average cost of capital

Answer 15

D

Question 16

A problem with rewarding managers only on the basis of residual income is that:

a. residual income is difficult to measure
b. on occasion the items in the residual income calculation are not quantifiable
c. residual income can depend on items over which the manager has little control
d. All of these answers are correct.

Answer 16

C