True-False Indicate whether each statement is true (T) or false (F). ___ 1. A co

Question

True-False

Indicate whether each statement is true (T) or false (F).

___ 1.        A company’s market share is an example of external nonfinancial information.

___ 2.        A good reason for using ROI as a performance measure rather than RI is that goal congruence is more likely to be promoted by using ROI.

___ 3.        The DuPont method of profitability analysis recognizes two basic ingredients to profit making: increasing income per dollar of revenues and using assets to generate more revenues.

___ 4.        If companies compensate managers on the basis of changes in the market price of the company’s stock, this approach tends to shorten managers’ time horizon because stock prices incorporate the expected future period effects of current decisions.

___ 5.        Those who favor using net book value as the investment base in ROI calculations claim this approach enables more accurate comparisons to be made across subunits.

___ 6.        Comparing performance of the divisions of a multinational company is difficult because of economic, legal, political, cultural, and currency differences.

___ 7.        The necessary and sufficient condition for moral hazard to exist in a company is that the employee’s interest differs from the owner’s interest.

___ 8.        Performance measures that are sensitive to the manager’s performance motivate the manager but limit his or her exposure to uncontrollable risk.

___ 9.        It can be cost effective to benchmark a manager’s performance against the best levels of performance available within the company or in other companies.

___ 10.      Holding managers and other employees accountable for and rewarding them for achieving performance goals in diagnostic control systems needs to be counter-balanced with boundary systems, belief systems, and interactive control systems.

Explanation / Answer

___ 1.        A company’s market share is an example of external nonfinancial information. TRUE ___ 2.        A good reason for using ROI as a performance measure rather than RI is that goal congruence is more likely to be promoted by using ROI. TRUE ___ 3.        The DuPont method of profitability analysis recognizes two basic ingredients to profit making: increasing income per dollar of revenues and using assets to generate more revenues. TRUE ___ 4.        If companies compensate managers on the basis of changes in the market price of the company’s stock, this approach tends to shorten managers’ time horizon because stock prices incorporate the expected future period effects of current decisions. TRUE ___ 5.        Those who favor using net book value as the investment base in ROI calculations claim this approach enables more accurate comparisons to be made across subunits. FALSE ___ 6.        Comparing performance of the divisions of a multinational company is difficult because of economic, legal, political, cultural, and currency differences. FALSE ___ 7.        The necessary and sufficient condition for moral hazard to exist in a company is that the employee’s interest differs from the owner’s interest. TRUE ___ 8.        Performance measures that are sensitive to the manager’s performance motivate the manager but limit his or her exposure to uncontrollable risk. FALSE ___ 9.        It can be cost effective to benchmark a manager’s performance against the best levels of performance available within the company or in other companies. TRUE ___ 10.      Holding managers and other employees accountable for and rewarding them for achieving performance goals in diagnostic control systems needs to be counter-balanced with boundary systems, belief systems, and interactive control systems. TRUE

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