In a decentralized organization, Co. X, Division A is evaluated according to ROI, while Division B is evaluated according to residual income. Of Co.X, Div. A and Div.B, which is more likely to make an investment decision that will hurt Co. 9. X's income? a. Co. X c. Division B b. Division A d. All are equally likely to do this
In a decentralized organization, Co. X, Division A is evaluated according to ROI, while Division B is evaluated according to residual income. Of Co.X, Div. A and Div.B, which is more likely to make an investment decision that will hurt Co. 9. X's income? a. Co. X c. Division B b. Division A d. All are equally likely to do this
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:In a decentralized organization, Co. X, Division A is
evaluated according to ROI, while Division B is evaluated
according to residual income. Of Co.X, Div. A and Div.B, which
is more likely to make an investment decision that will hurt Co.
X's income?
a. Co. X
b. Division A d. All are equally likely to do this
9.
c. Division B
10. Division A, an investment center, has operating income =
$80,000 for the prior period. The residual income during this
period is $20,000. If Division A’s investment assets = $300,000,
then cost of capital set by the corporation's top management
must be:
a. 12%|c.20%
b. 15% d. 25%
11.
A division manager is considering investing in a new
product. The division's income is currently $465,000 with
operating assets of $8 million. The new product would increase
income by $270,000 and would require an additional investment
in equipment of $1.5 million. The ROI of the division before
and after the investment is respectively:
a. 5.8% and 7.7%
c. 7.7% and 5.8%
b. 11.6% and 15.8%|d. Cannot determine
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