54) Managerial Financial Accounting Assignments E12-13 Solution

54) Managerial Financial Accounting Assignments E12-13 Solution

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E12-13
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Overinvestment and Underinvestment [LO 5] Consider two companies: Quantum Products and Aquafin Products. Senior managers at Quantum Products are evaluated in terms of increases in profit. In fiscal 2011, Quantum Products had a net operating profit after taxes of $2,500,000 and invested capital of $25,000,000. In fiscal 2012, the company had net operating profit after taxes of $3,000,000 and invested capital of $37,500,000. Senior managers at Aquafin Products are evaluated in terms of ROI. In fiscal 2012, ROI was 16
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Unformatted text preview: percent while the cost of capital was only 12 percent. Near the end of fiscal 2012, managers had an opportunity to make an investment that would have yielded a return of 14 percent. However, the senior managers did not support making the investment. Explain why the senior managers at Quantum Products have an incentive to overinvest. Explain why the senior managers at Aquafin Products have an incentive to underinvest....
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This note was uploaded on 08/02/2011 for the course MGMT 425 taught by Professor Brown/lexner during the Spring '11 term at Kaplan University.

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54) Managerial Financial Accounting Assignments E12-13 Solution

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