Which of the following would be an argument for using the gross cost of plant and equipment as part of operating assets in return on investment computations? Multiple Choice It discourages the replacement of old, worn-out equipment because of the dramatic, adverse effect on ROI. It is consistent with the balance sheet presentation of plant and equipment. It eliminates the age of equipment as a factor in ROI computations. It is consistent with the computation of net operating income, which includes depreciation as an operating expense.

How may using ROI as a success indicator for investment centers lead to poor decisions? How does the residual income strategy address this issue?

When determining the value for vacant land, we look to the following data points for financial calculations, EXCEPT: (A) Perc Test for Contaminants (B) Soft Costs (C) Profit Rates of Return (D) Hard Costs

What is the major shortcoming of using income from operations as a performance measure for investment centers?

Return on Investment; Present Value Depreciation; Spreadsheet Application As indicatedin the chapter, there are goal congruence problems associated with the use of ROI as an indicator ofbusiness unit financial performance. One such problem relates to the bias against accepting new investments because of the adverse effect on a business unit’s ROI metric. Assume, for example, that themanager of a business unit can invest in a new, depreciable asset costing $75,000 and that this asset hasa 3-year life with no salvage value. Cash inflows associated with this investment are projected to beas follows: $30,000, $35,000, and $43,200. (Ignore taxes.) This scenario leads to an estimated internalrate of return (IRR) of 19.44%. Assume that the minimum required rate of return is 15%.Required1. Demonstrate, using the IRR function in Excel, that the IRR on this proposed investment is indeed19.44%.2. Calculate the year-by-year return on investment (ROI) on this proposed investment. For this…

Which of the following statements is true? The use of return on investment (ROI) as a performance measure may lead managers to reject a project that would be favorable for the company as a whole. Land held for possible plant expansion would be included as an operating asset when computing return on investment (ROI).

Calculate the fixed-asset turnover ratio used by analysts to measure howeffectively managers use property, plant, and equipment

What is downsizing? A. An integrated approach configuring processes, products, and people to match costs to the activities that need to be performed for operating effectively and efficiently in the present and future. B. A comparison of the quantity of output produced with the quantity of an individual input used. C. The amount of productive capacity available over and above the productive capacity employed to meet customer demand in the current period. D. An organization's ability to achieve lower costs relative to competitors through productivity and efficiency improvements, elimination of waste, and tight cost control.

Please explain a major shortcoming of using income from operations as a performance measure for investment centers.