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Unformatted text preview: 1. Return on investment (ROI) is equal to the margin multiplied by: A) sales. B) turnover. C) average operating assets. D) residual income. 2. Delmar Corporation is considering the use of residual income as a measure of the performance of its divisions. What major disadvantage of this method should the company consider before deciding to institute it? A) This method does not take into account differences in the size of divisions. B) Investments may be adopted that will decrease the overall return on investment. C) The minimum required rate of return may eliminate desirable investments. D) Residual income does not measure how effectively the division manager controls costs. 3. A company had the following results last year: sales, $700,000; return on investment, 28%; and margin, 8%. The average operating assets last year were: A) $200,000 B) $2,450,000 C) $540,000 D) $2,500,000 4. The Northern Division of the Smith Company had average operating assets totaling $150,000 last year. If the minimum required rate of return is 12%, and if last year's net operating income at Northern was $20,000, then the residual income for Northern last...
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- Spring '98
- residual income, correct option