43. Which of the following is considered a disadvantage of return os ims investm

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43. Which of the following is considered a disadvantage of return os ims investment (ROD? a ROI encourages managers to look carefully at relationships between sales, revenues, expenses, and investment b. ROI encourages cost efficiency to the organizatiom anagen of subunits with high ROls to inves in projects with low ROis tht are d. ROI discourages excessive investment in operating assets 44. An organization's Each Division is considering a project that will divisions, which of the following statements is true? required rate of return is 13%. The Rol of Divisions A and B, respectively, is 10% and Is. have a 12% rate of return. If residual income is used to evaluate a. Both divisions will accept the project b. Both divisions will reject the project c. Division A will accept, and Division B will reject, the project d. Division A will reject, and Division B will accept, the project 45. The performance of the manager of the Western Division is measured by residual income. Which of the following would increase the manager's performance measure? a. Increase in assets b. Decrease in minimum required return c. Decrease in sales d. Decrease in net operating income 46. Which of the following would be an argument for using the gross cost of plant and equipment as part of operating assets in return on investment computations? a. It is consistent with the computation of net operating income, which includes depreciation as an operating expense- b. It is consistent with the balance sheet presentation of plant and equipment. c. It eliminates the age of equipment as a factor in ROI computations. d. It discourages the replacement of old, worn-out equipment because of the dramatic, adverse effect on ROI 47. Using ending balances for the investment base in computing return on investment (ROI) might encourage managers to acquire assets early in the year and dispose of assets late in the year. early in the year and dispose of assets early in the year. late in the year and dispose of assets late in the year. late in the year and dispose of assets early in the year. a. b. c. d. 48. Which of the balanced scorecard perspectives is first in the chain of cause and effect relationships? a. Financial b. Customer c. Internal process d. Innovation and learning The return-on-investment ratio is an example of a Balanced Scorecards measure of the a. Financial perspective. b. Customer perspective. c. Internal process perspective. d. Innovation and learning perspective 49· 50. The Balanced Scorecard a. aims to improve the nonfinancial performance of the business. b. is based on financial measures. c. is based on nonfinancial measures. d. reveals the underlying nonfinancial drivers of financial performance

Explanation / Answer

Ans:

43.) Ans is option C. since a subunit manager having a higher ROI does not want to invest in projects which have lower ROI than subunit's current ROI because it will decrease Subunit overall ROI but on the other side it will be beneficial for organisation as a whole. So that why it is considered as a disadvantage of ROI.

44.) Ans is Option B. since in residual income, projects which have return higher than minimum required return are accepted by division. In the given question, new projet has a return less than minimum required return, both divisions will reject the project.

45.) Ans is Option B. since residual income is calculated by following formula:

Operationg Income-(Minimum required return*Operating Assets). If minimum rate of return required is decreased, it will increase residual income which is the measure to evaluate the manager performance.

46.) Ans is Option C. ROI will not change based on age of operating assets since If we use books value, ROI will change every year due to change carrying amount of asset.

47.) Ans is Option A. since acquiring assets early in year and disposing late in year will result in low operating assets and ultimately a higher ROI. So in this way, managers can use asset for a longer period of time without effecting their ROI.

48.) Ans is Option D. since chain of cause and effect relationship firstly effect the people within the organisation that are responsible for new innovation and learning will become a continuous process.

49.) Ans is Option A. since financial propspective indicate the company strategy that helped in adding value to shareholders which is indicated by ROI.

50.) Ans is Option D. Balance Scorecard revals the nonfinancial drivers of financial performance. Balance Scorecard work on four perspectives: Financial, Internal, Customer and Innovation and Learning.

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