1. A company that is seeking to increase ROI should attempt to decrease:

sales.

turnover.

margin.

average operating assets.

2. Net operating income is defined as:

net income plus interest and taxes.

sales minus variable expenses.

sales minus variable expenses and traceable fixed expenses.

contribution margin minus traceable and common fixed expenses.

3. Which of the following would be an argument for the use of net book value in the computation of operating assets in return on investment calculations?

It allows the manager to replace old, worn-out equipment with a minimum adverse impact on ROI.

It allows ROI to decrease over time as assets get older.

It is consistent with how plant and equipment items are reported on the balance sheet.

It eliminates both age of equipment and method of depreciation as factors in ROI computations.

4. Managerial performance can be measured in many different ways including return on investment (ROI) and residual income. A good reason for using residual income instead of ROI is:

Residual income can be computed without having to measure operating assets.

Managers are more likely to accept projects that are beneficial to the company.

ROI does not take into account both turnover and margin.

A minimum rate of return does not have to be specified when the residual income approach is used.

5. Residual income:

is the return on investment (ROI) percentage multiplied by average operating assets.

is the net operating income earned above a certain minimum required return on sales.

is the net operating income earned above a certain minimum required return on average operating assets.

will always be greater than zero.

6. All other things being the same, which of the following would increase the residual income?

Decrease in average operating assets.

Decrease in sales.

Increase in minimum required return.

Decrease in net operating income.