Q: What problems might there be if the same methods used to compute
What problems might there be if the same methods used to compute firm income are used to compute divisional income? Does your answer depend on the type of business a firm is in?
See AnswerQ: The chapter identified some problems with ROI-type measures and suggested
The chapter identified some problems with ROI-type measures and suggested that residual income reduces some of them. Why do you think that ROI is a more common performance measure in practice than res...
See AnswerQ: A friend owns and operates a consulting firm that works for a
A friend owns and operates a consulting firm that works for a single client under one consulting agreement. The consulting firm bills the client monthly for charges incurred. She asks you whether you...
See AnswerQ: “Failure to invest in projects is not a problem when you
“Failure to invest in projects is not a problem when you use ROI. If there is a good project, corporate headquarters will just tell the division manager to invest.” What are the difficulties with this...
See AnswerQ: How would you respond to the following comment? “Residual income
How would you respond to the following comment? “Residual income and economic value added are identical.”
See AnswerQ: “I think that EVA is the best performance measure. I
“I think that EVA is the best performance measure. I am going to recommend that we evaluate all managers, of plants, divisions, subsidiaries, up to the chief executive officer (CEO), using it.” Do you...
See AnswerQ: Management of Division A is evaluated based on residual income measures.
Management of Division A is evaluated based on residual income measures. The division can either rent or buy a certain asset. Might the performance evaluation technique have an impact on the rent-or-b...
See AnswerQ: “Every one of our company’s divisions has a return on investment
“Every one of our company’s divisions has a return on investment in excess of our cost of capital. Our company must be a blockbuster.” Comment on this statement.
See AnswerQ: “Residual income solves some of the problems with ROI, but
“Residual income solves some of the problems with ROI, but because it is an absolute number, it is difficult to compare divisions. We should use residual income divided by assets and then we would hav...
See AnswerQ: Eastern Merchants shows the following information for its two divisions for year
Eastern Merchants shows the following information for its two divisions for year 1: Required Compute divisional operating income for the two divisions. Ignore taxes. How well have these divisions pe...
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