CHAPTER 23 PEARSON QUIZ

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George Brown College Canada *

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Apr 3, 2024

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CHAPTER 23 PEARSON QUIZ 1. The top management at Niagara Company, a manufacturer of lawn and garden equipment, is attempting to recover from a flood, which destroyed some of its accounting records. The main computer system was also severely damaged. The information in the table was salvaged. What is the value of the total assets belonging to the Tractor Division? A. $4,000,000 B. $4,500,000 C. $3,500,000 D. $5,000,000 E. $2,000,000 2. The top management at Niagara Company, a manufacturer of lawn and garden equipment, is attempting to recover from a flood, which destroyed some of its accounting records. The main computer system was also severely damaged. The information in the table was salvaged. What is the Tractor Division's investment turnover? Round to one decimal place. A. 1.0 B. 0.5 C. 3.0 D. 2.5 E. 2.0 3. The top management at Niagara Company, a manufacturer of lawn and garden equipment, is attempting to recover from a flood, which destroyed some of its accounting records. The main computer system was also severely damaged. The information in the table was salvaged. What is the Tractor Division's return on sales? Round to two decimal places. A. 0.20 B. 0.12 C. 0.10 D. 0.25 E. 0.15 1

4. The top management at Niagara Company, a manufacturer of lawn and garden equipment, is attempting to recover from a flood, which destroyed some of its accounting records. The main computer system was also severely damaged. The information in the table was salvaged. What were the sales for the Tiller Division? A. $9,600,000 B. $15,500,000 C. $14,400,000 D. $12,000,000 E. $15,000,000 5. The top management at Niagara Company, a manufacturer of lawn and garden equipment, is attempting to recover from a flood, which destroyed some of its accounting records. The main computer system was also severely damaged. The information in the table was salvaged. What is the Digger Division's return on investment? Α. 0.20 B. 0.45 C. 0.60 D. 0.25 E. 0.30 6. The top management at Niagara Company, a manufacturer of lawn and garden equipment, is attempting to recover from a flood, which destroyed some of its accounting records. The main computer system was also severely damaged. The information in the table was salvaged. What is the Tiller Division's investment turnover? Round to three decimal places. A. 0.833 B. 1.333 C. 1.500 D. 0.500 E. 1.222 2

7. The top management at Niagara Company, a manufacturer of lawn and garden equipment, is attempting to recover from a flood, which destroyed some of its accounting records. The main computer system was also severely damaged. The information in the table was salvaged. What is the value of the total assets belonging to the Tiller Division? A. $12,000,000 B. $10,000,000 C. $15,000,000 D. $14,400,000 E. $16,000,000 8. Which of the following incorporates the amount of investment into the performance measure? A. return on investment B. dividend income C. residual income D. both residual income and return on investment E. both dividend income and residual 9. The Auto Division of Speed Corporation has $2.5 million in total assets and $200,000 in liabilities, while the Transportation Division has $5 million in total assets and $3 million in liabilities. What are the imputed costs of the Auto division and the Transportation division, respectively, if the corporation has a required rate of return of 11%? A. $253,000 and $330,000 B. $297,000 and $880,000 C. $200,000 and $3,000,000 D. $275,000 and $550,000 E. $275,000 and $330,000 10. Keeping all other factors constant, which of the following would NOT cause an increase in the return on investment? A. actions that decrease expense B. actions that decrease investments C. actions that increase revenues D. actions that increase sales E. actions that increase liabilities 3

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11. The top management at Montreal Company, a manufacturer of computer games, is attempting to recover from a flood, which destroyed some of its accounting records. The main computer system was also severely damaged. The information in the table was salvaged. What is the value of the total assets belonging to the Alpha Division? Round to the nearest dollar. A. $4,333,333 B. $6,434,434 C. $7,151,800 D. $6,000,000 E. $6,500,000 12. The top management at Montreal Company, a manufacturer of computer games, is attempting to recover from a flood, which destroyed some of its accounting records. The main computer system was also severely damaged. The information in the table was salvaged. What were the sales for Beta Division? Round to the nearest dollar. A. $6,500,000 B. $5,952,380 C. $6,326,787 D. $7,151,800 E. $4,333,333 13. The top management at Montreal Company, a manufacturer of computer games, is attempting to recover from a flood, which destroyed some of its accounting records. The main computer system was also severely damaged. The information in the table was salvaged. What is the value of the total assets belonging to the Beta Division? Round to the nearest dollar. A. $7,151,800 B. $4,654,252 C. $4,333,333 D. $5,952,380 E. $6,500,000 4

14. The top management at Montreal Company, a manufacturer of computer games, is attempting to recover from a flood, which destroyed some of its accounting records. The main computer system was also severely damaged. The information in the table was salvaged. What is the Alpha Division's return on sales? Round to two decimal places. A. 0.60 B. 0.42 C. 0.25 D. 0.75 E. 0.80 15. The top management at Montreal Company, a manufacturer of computer games, is attempting to recover from a flood, which destroyed some of its accounting records. The main computer system was also severely damaged. The information in the table was salvaged. What is the Gamma Division's return on investment? Round to two decimal places. A. 0.60 B. 0.25 C. 0.42 D. 0.75 E. 0.80 16. The top management at Montreal Company, a manufacturer of computer games, is attempting to recover from a flood, which destroyed some of its accounting records. The main computer system was also severely damaged. The information in the table was salvaged. What is the Alpha Division's investment turnover? Round to two decimal places. A. 0.50 B. 3.51 C. 2.43 D. 1.00 E. 0.42 5

17. The top management at Montreal Company, a manufacturer of computer games, is attempting to recover from a flood, which destroyed some of its accounting records. The main computer system was also severely damaged. The information in the table was salvaged. What is the Beta Division's investment turnover? Round to two decimal places. A. 0.50 B. 0.75 C. 1.50 D. 2.57 E. 0.67 18. A company's weighted-average cost of capital [WACC] was 9.6% last year. The company has $6,000,000 of bonds payable (its only debt) with a 9.25% coupon, and has $9,000,000 in equity capital. The tax rate is 35%. What is the company's cost of debt funding? Round to two decimal places. A. 6.25% B. 6.01% C. 12.00% D. 9.25% E. 6.50% 19. A company's weighted-average cost of capital [WACC] was 9.6% last year. The company has $6,000,000 of bonds payable (its only debt) with a 9.25% coupon, and has $9,000,000 in equity capital. The tax rate is 35%. What is the company's cost of equity capital? Round to two decimal places. A. 12.00% B. 9.25% C. 6.00% D. 6.50% E. 6.25% 20. Which of the following performance measures is more likely to promote goal congruence? A. contribution margin B. inventory turnover C. return on investment D. residual income E. marginal income 21. For the past year, Badger Company had a net income of $175,000. What is the ROI if the investment is $25,000? Round to three decimal places. A. 5.450 B. 2.500 C. 7.000 D. 5.140 E. 0.142 6

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22. Light Publishing has two divisions which operate autonomously. Their results for the past year were as follows. The company's desired rate of return is 15%. What are the return on investment ratios for the Toronto and Vancouver divisions, respectively? Round to two decimal places. A. 0.38; 0.45 B. 0.04; 0.58 C. 0.38; 0.40 D. 0.31; 0.47 E. 0.77; 1.25 23. Light Publishing has two divisions which operate autonomously. Their results for the past year were as follows. The company's desired rate of return is 15%. What are the residual incomes for the Toronto and Vancouver divisions, respectively? A. $975,000; $1,125,000 B. $1,025,000; $1,125,000 C. $1,025,000; $2,375,000 D. $1,075,000; $1,125,000 E. $2,375,000; $1,025,000 24. What disadvantage is there in using ROI and/or RI as performance measures? A. RI is measured in absolute dollars but ROI is in percentages. B. A manager's bonus will decrease when ROI decreases. C. ROI may decrease when business expands if income does not increase in line with the new investment. D. Imputed costs that are deducted in the RI calculation, are not recognized in accrual accounting, and are therefore not included in the operating figure used in calculating ROI. E. RI and ROI are both single-period measures. 7

25. Scarbrough Company has two sources of funds: long-term debt with a market and book value of $15 million issued at an interest rate of 10%, and equity capital that has a market value of $9 million (book value of $5 million). Scarbrough Company has profit centres in the following locations with the following operating incomes, total assets, and current liabilities. The cost of equity capital is 15%, and the tax rate is 30%. What is the EVA for Stonybrook? Round to the nearest dollar. A. $1,168,700 B. $994,188 C. $1,108,000 D. $1,403,063 E. $1,315,063 26. Scarbrough Company has two sources of funds: long-term debt with a market and book value of $15 million issued at an interest rate of 10%, and equity capital that has a market value of $9 million (book value of $5 million). Scarbrough Company has profit centres in the following locations with the following operating incomes, total assets, and current liabilities. The cost of equity capital is 15%, and the tax rate is 30%. What is the EVA for Brooksville? Round to the nearest dollar. A. $428,000 B. $318,750 C. $390,000 D. $415,525 E. $476,250 27. Scarbrough Company has two sources of funds: long-term debt with a market and book value of $15 million issued at an interest rate of 10%, and equity capital that has a market value of $9 million (book value of $5 million). Scarbrough Company has profit centres in the following locations with the following operating incomes, total assets, and current liabilities. The cost of equity capital is 15%, and the tax rate is 30%. What is the EVA for Bish Bash Falls? Round to the nearest dollar. A. $275,500 B. $220,188 C. $255,500 D. $338,563 E. $305,000 28. A company has total assets of $500,000, a required rate of return of 10%, and operating income for the year was $200,000. What is the residual income? A. $175,000 B. $250,000 C. $150,000 D. $200,000 E. $480,000 8

29. A corporation has a required rate of return of 13% for all subsidiaries. The Calgary subsidiary earned residual income of $200,000 in year 1, and $300,000 in year 2 on an investment base of $4,500,000. What rate of return did the Calgary subsidiary earn in years 1 and 2 respectively? Round to one decimal place. A. 7.9% and 10.9% B. 17.4% and 19.7% C. 4.4% and 6.7% D. 10.0% and 13.0% E. 13.0% and 13.0% 30. The Cybertronics Corporation reported the following information for its Cyclotron Division. Income is defined as operating income. What is the Cyclotron Division's return on investment? Round to one decimal place. A. 54.5% B. 27.3% C. 70.6% D. 35.3% 31. The most popular approach to incorporating the investment base into a performance measure is _______. A. return on investment B. residual income C. economic value added D. opportunity cost E. income on return 32. The cost of capital that is recognized in a residual income calculation is also called the _______ cost. A. operating income B. cash accounting C. incremental D. opportunity E. imputed 33. Which of the following is TRUE concerning the ROI performance measure? A. Is also called the accounting rate of return. B. The usual formulation is [total assets/ income]. C. Some companies use net assets (assets minus liabilities) as the numerator. D. ROI is based on cash flow. E. Net assets are sometimes used as the denominator, and net assets are sometimes used as the numerator. 9

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34. Brandon Company has two sources of funds: long term debt with a market and book value of $9 million issued at an interest rate of 10 percent, and equity capital that has a market value of $6 million (book value of $2 million). The cost of equity capital is 5 percent, while the tax rate is 30 percent. Brandon Company has profit centres in the following locations with the following data. What is the EVA for St. Johns? A. $145,000 B. $142,200 C. $200,000 D. $190,600 E. $310,600 35. Brandon Company has two sources of funds: long term debt with a market and book value of $9 million issued at an interest rate of 10 percent, and equity capital that has a market value of $6 million (book value of $2 million). The cost of equity capital is 5 percent, while the tax rate is 30 percent. Brandon Company has profit centres in the following locations with the following data. What is the EVA for Ottawa? A. $218,200 B. $362,200 C. $480,000 D. $163,200 E. $140,000 36. Brandon Company has two sources of funds: long term debt with a market and book value of $9 million issued at an interest rate of 10 percent, and equity capital that has a market value of $6 million (book value of $2 million). The cost of equity capital is 5 percent, while the tax rate is 30 percent. Brandon Company has profit centres in the following locations with the following data. What is the EVA for Regina? A. $218,200 B. $342,000 C. $379,200 D. $648,000 E. $685,200 10

37. Royal Medical Services provided the information in the table for its operations in the Hospital Bed Division. What is the Hospital Bed's residual income? A. $30,000 B. $(195,000) C. $85,000 D. $1,285,000 E. $(250,000) 38. Bouvous Corp has two regional offices. The data for each are as follows. What is the return on investment for the New Jersey Division? Round to one decimal place. A. 25.5% B. 41.4% C. 6.3% D. 19.2% 39. Pyramids Company provided the following information for the year that just ended. What is the return on investment? Round to two decimal places. A. 1.57 B. 1.05 C. 0.55 D. 2.25 E. 0.59 40. The DuPont method of profitability analysis is _______. A. ROI x RI B. ROI x WACC C. ROI / WACC D. TA - CL / operating income E. [revenue / investment] x [income / revenue] 11

41. Springflowers Corporation, whose tax rate is 40%, has two sources of funds: long-term debt with a market value of $8,000,000 and an interest rate of 8%, and equity capital with a market value of $12,000,000 and a cost of equity of 12%. Springflowers has two operating divisions, the Blue division and the Gold division, with the following financial measures for the current year. What is the Economic Value Added (EVA) for the Blue Division? A. $(63,800) B. $21,960 C. $433,960 D. $188,600 E. $(233,400) 42. Springflowers Corporation, whose tax rate is 40%, has two sources of funds: long-term debt with a market value of $8,000,000 and an interest rate of 8%, and equity capital with a market value of $12,000,000 and a cost of equity of 12%. Springflowers has two operating divisions, the Blue division and the Gold division, with the following financial measures for the current year. What is Economic Value Added (EVA) for the Gold Division? A. $397,440 B. $(82,560) C. $(283,200) D. $196,800 E. $(195,200) 43. An automotive dealership, with a book value of $3,000,000, and total assets of $5,000,000, has a long history of earning 18%. Last year, the company earned $900,000. The owner is considering acquiring another dealership in a nearby town. If the expansion increases income by 50%, what is the maximum amount of investment the owner can make in the new dealership in order to maintain his desired 18% return? A. $1,350,000 B. $9,000,000 C. $3,000,000 D. $2,500,000 E. $5,000,000 44. Which of the following approaches include investment in the performance measure? A. ROI and ROS B. ROS and RI C. EVA and ROI D. ROI and RI E. ROI, EVA, and RI 12

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45. Thacker Company has two regional offices. The information for each is as follows. What is the return on investment for the Sarnia division? Round to two decimal places. A. 0.21 B. 0.25 C. 0.27 D. 0.48 E. 2.06 46. Thacker Company has two regional offices. The information for each is as follows. What is the Edmonton Division's return on investment? Round to two decimal places. A. 0.21 B. 0.25 C. 2.06 D. 0.48 E. 0.27 13

CHAPTER 23 PEARSON QUIZ

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