Strategic Management

CAD
1. A segment which is most likely a totally independent, standalone business where

managers are expected to "make it on their own".
A. cost center
B. revenue center
C. profit center
D. investment center
2. A distinguishing characteristic of an investment center is that

A. revenues are generated by selling and buying stocks and bonds.
B. interest revenue is the major source of revenues.
C. the profitability of the center is related to the funds invested in the center .
D. it is a responsibility center which only generates revenues.
3. Return on investment (ROI) = Income/ investment. The income calculation for a

division manager's ROI should be based on
A. divisional contribution margin
B. profit margin controllable by the division manager
C. profit margin traceable to the division
D. divisional income before interest and taxes
E. divisional net income
4. Return on investment (ROI) = Income/ investment When evaluating the ROI of an

investment center, which denominator used in ROI formula is criticized because it
combines the effects of operating decisions made at one firm level with financing
decisions made at another firm level?
A. total assets available
B. total assets employed
C. working capital plus other assets
D. shareholders’ equity
5. IF the ROI only considers these components: S = Sales I = Investment NI = Net

Income Which formula best describes the ROI calculation?
A. (I/S) x (S/NI) = I/NI
B. (I/S) x (NI/S) = (Ix NI) x (S x S)
C. (S/I) x (NI/S) = NI/I
D. (S/I) x (S/NI) = (S x S)/(I x NI)
6. The Du Pont model measures ROI by breaking it into two components namely *
A. Profit margin and asset turnover
B. Contribution margin and asset turnover
C. segment margin and asset turnover
D. profit margin and inventory turnover
7. In the formula for ROI, idle plant assets are *
A. included in the calculation of controllable margin.
B. included in the calculation of operating assets.
C. excluded in the calculation of operating assets.
D. excluded from total assets.
8. If ROI measures performance over a period of time, invested capital would most
appropriately be figured by using: *
A. beginning-of-year assets
B. end-of-year assets
C. average assets
D. total assets.
9. When an organization allows divisional managers to be responsible for short-term

loans and credit, the division's invested capital should be measured by *
A. total assets minus total liabilities
B. average total assets minus average current liabilities
C. average total assets minus average total liabilities.
D. average total liabilities minus average current assets
E. average total liabilities minus total assets.
10. Evaluating performance using ROI encourages managers to focus on *

A. income and investment
B. cost efficiency and operating asset efficiency
C. both A and B
D. neither a nor b
11. Which statement/s represent a disadvantage of ROI? I. ROI tends to emphasize

long run profitability rather than short run performance. II. ROI is not consistent with
the cash flow models used for capital expenditure analysis III. ROI may not be fully
controllable by division manager due to presence of committed costs. *
A. I only
B. III only
C. I and II only
D. II and III only
12. The basic objective of residual income (RI) approach to performance

measurement and evaluation is to have a division maximize its: *
A. ROI
B. cash flows
C. cash flows in excess of a desired minimum amount
D. operating income in excess of a minimum return
13. Imputed interest rate used in the RI approach can best be described as the *
A. average lending rate for the year being evaluated
B. historical weighted average cost of capital for the company
C. marginal after tax cost of capital on new equity capital
D. target ROI set by the company’s management
14. Using residual income for evaluating the performance of a division *
A. penalizes managers whose segments have low ROIs
B. penalizes managers of relatively large segment
C. encourages managers to maximize pesos of profit after a required ROI has been achieved
D. encourage managers to maximize ROI for the company
15. Managerial performance can be measured in many different ways including return
on investment (ROI) and residual income (RI) . A good reason for using RI instead of
ROI is: *
A. RI can be computed without having to measure operating assets.
B. managers are more likely to accept projects that are beneficial to the company.
C. ROI does not take into account both turnover and margin.
D. a minimum rate of return does not have to be specified when the RI approach is used.
16. An advantage of RI is that it encourages managers to *

A. accept projects which provide returns in excess of the company's required rate of return
B. to increase asset turnover
C. attempt to increase the margin
D. all of the above
17. Which performance measure will decrease if the minimum required rate of return
increases? *
A. ROI
B. Residual Income
C. both a and b
D. either a or b
E. neither a nor b
18. Assuming that sales and net income remain the same, a company’s ROI will: *
A. increase if invested capital increases.
B. decrease if invested capital decreases.
C. decrease if the invested capital employed turnover rate decreases.
D. decrease if the invested capital employed turnover rate increases.
E. None of the above
19. Other factors remaining unchanged, the rate of ROI may be improved by *
A. increasing investment in assets.
B. increasing expenses.
C. reducing sales
D. decreasing investment in assets.
20. All other things equal, which would increase a division's residual income? *
A. Increase in expenses.
B. Decrease in average operating assets.
C. Increase in minimum required return
D. Decrease in net operating income.
E. answer not given
21. DM Company’s Household Products Division reported in 2019 sales of
P15,000,000, an asset turnover ratio of 3.0, and a rate of return on average assets of
18%. The percentage of net income to sales is *
A. 3 %
B. 5 %
C. 6 %
D. 12 %
22. *
A. 13 %
B. 15 %
C. 20 %
D. 25 %
23. Marsh Company that had current operating assets of one million and net income of
P200,000 had an opportunity to invest in a project that requires an additional
investment of P250,000 and increased net income by P40,000. After the investment,
the company's ROI will be *
A. 16.0%
B. 18.0%
C. 19.2%
D. 20.2%
24. If the investment turnover increased by 30% and ROS decreased by 20%, the ROI
would increase (decrease) by *
A. 30%
B. 6%
C. 4%
D. answer not given
25. *
A
B
C
D
26. Using #25, What is CBA Co. 's residual income? *
A. P25,000
B. (P50,000)
C. P150,000
D. (P200,000)
27. The current income for a subunit is P36,000. Its current invested capital is
P200,000. The subunit is considering purchasing for P20,000 equipment that will
increase annual income by an estimated P2,800. The firm's cost of capital is 12%. If
the equipment is purchased, the residual income of the subunit will increase
(decrease) by *
A. 4%
B. P400
C. P2,800
D. P16,000
28. Data about Les Division of Les Miserables Co. are as follows: A. Sales during the
year amounted to P880,000 at 12% margin B. Return on investment was 20% C.
Minimum required rate of return was 15% The residual income of Les Division must
be *
A. P26,400
B. P42,240
C. P79,200
D. P105,600
29. Division K, an investment center of KTA Inc. is targeting a residual income of

P100,000 in the coming year, using an imputed interest charge of 20%. Other data for
the coming year follows: Working capital P90,000 Plant assets P860,000 Cost and
expenses P1,210,000 To achieve the target residual income, revenue must be: *
A. P1,300,000
B. P1,464,000
C. P1,482,000
D. P1,500,000
30. Using the data in #29, Division K’s ROI would exceed desired rate of return by *
A. 10.53%
B. 19.5%
C. 20%
D. 30.53%
31. *
A
B
C
D
32. Jaguar Division of Automobile Delights, is evaluated based on residual income

generated. In the most recent year, the Jaguar Division generated a residual income
of P2,000,000 and net income of P5,000,000. The target rate of return for all divisions
of Automobile Delights is 20%. What was the return on investment for the Jaguar
Division?
A. 40%
B. 33%
C. 20%
D. 13%

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CAD

1. A segment which is most likely a totally independent, standalone business where

2. A distinguishing characteristic of an investment center is that

3. Return on investment (ROI) = Income/ investment. The income calculation for a

4. Return on investment (ROI) = Income/ investment When evaluating the ROI of an

5. IF the ROI only considers these components: S = Sales I = Investment NI = Net

9. When an organization allows divisional managers to be responsible for short-term

10. Evaluating performance using ROI encourages managers to focus on *

11. Which statement/s represent a disadvantage of ROI? I. ROI tends to emphasize

12. The basic objective of residual income (RI) approach to performance

16. An advantage of RI is that it encourages managers to *

29. Division K, an investment center of KTA Inc. is targeting a residual income of

32. Jaguar Division of Automobile Delights, is evaluated based on residual income

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