1. if the company decides to give a bonus to managers based on Residual Income, Which segment’s manager will get the bonus? a) Segment D b) Segment B c) Segment C d) Segment A 2. If the company decides to give a bonus to managers based on ROA, which segment's manager will get the bonus? a) Segment B b) Segment A c) Segment C d) Segment D
1. if the company decides to give a bonus to managers based on Residual Income, Which segment’s manager will get the bonus? a) Segment D b) Segment B c) Segment C d) Segment A 2. If the company decides to give a bonus to managers based on ROA, which segment's manager will get the bonus? a) Segment B b) Segment A c) Segment C d) Segment D
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
assuming cost of capital of 10% and then answer the following questions:
1. if the company decides to give a bonus to managers based on Residual Income, Which segment’s manager will get the bonus?
a) Segment D
b) Segment B
c) Segment C
d) Segment A
2. If the company decides to give a bonus to managers based on ROA, which segment's manager will get the bonus?
a) Segment B
b) Segment A
c) Segment C
d) Segment D
Transcribed Image Text:Residual income is the excess of operating income over the cost of capital associated with the
deployed assets. Following is information for four segments. Experiment with alternative
rates of the cost of capital by using the pick list choices associated with the boxed area. Note
how the relative residual income changes between the units based on the interest rate
assumption!
What do you wish to assume for the interest rate? >>>>
Operating income
Operating assets
Assumed interest rate
Cost of Capital
Residual income
Segment A
1,200,000
8,000,000
X 0
1,200,000
Segment B
1,000,000
4,000,000
X 0
1,000,000
Segment C
750,000
2,000,000
X 0
750,000
0%
Segment D
500,000
600,000
X 0
500,000
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