1. Jumbo Industries is considering the purchase of equipment costing $80,000. The company has a 12% required minimum rate of return. The equipment is expected to generate $20,000 in additional operating income. Jumbos tax rate is 25% and its weighted-average cost of capital is 12%. What is the equipments EVA?

A) 7,200

B) 5,400

C) 9,600

D) 2,400

2. Peoples Construction Company has set a 15% required minimum rate of return. The companys CFO is considering investing in a $125,000 crane that is expected to generate $25,000 of additional operating income. Peoples weighted average cost of capital is 10% and its tax rate is 30%. What is cranes EVA?

A) 5,000

B) 100,000

C) 12,500

D) 17,500

3. City retail sells two products: Standard and Deluxe. The company had sales of $800,000 during the current year. The companys contribution margin ratio was 40% and total fixed costs totaled $300,000. Sales were $600,000 for Standard and $200,000 for Deluxe. Traceable fixed costs were $150,000 for standard and $90,000 for Deluxe. Variable costs were $360,000 for standard and $120,000 for Deluxe. What is the segment margin for the Deluxe product?

A) (10,000)

B) 10,000

C) 20,000

D) 80,000

4. Althea Corporations Perfume division has a segment margin of $85,000 for the current reporting period. Total assets at the beginning of the period were $800,000 and $900,000 at the end of the period. What is the divisions ROI?

A) 9.44%

B) 10%

C) 10.625%

D) none of the above

5. Jumbo Industries is considering the purchase of equipment costing $80,000. The company has a 15% required minimum rate of return. The equipment is expected to generate $20,000 in additional operating income. What is the equipments residual income?

A) 9,000

B) 12,000

C) 15,000

D) 8,000

6. In the most recent reporting period, Athens Corporations Legion division generated net revenues of $2,000,000 and variable expenses of $700,000. Direct fixed expenses were $500,000 and common corporate fixed expenses were $250,000. What is the divisions segment margin?

A) $550,000

B) $1,050,000

C) $800,000

D) $1,300,000

7. Cleopatra Corporations Lingerie division has a segment margin of $729,000 and net sales revenue of $5,400,000 for the current reporting period. Average total assets for the period were $3,375,000. The division manager is considering implementing a new inventory system which would reduce the average total assets by $675,000. Assuming no change in sales or segment margin, the projected ROI with the reduction in inventory would be

A) 13.5%

B) 20%

C) 21.6%

D) 24%

8. Durango Corporations Midwestern region operates as an investment center. Rich Ruhlman, the divisions manager, has set a 15% required minimum rate of return. Ruhlman is considering investing in computerized manufacturing equipment with a cost of $220,000. The equipment is expected to generate $65,000 in additional operating income. What is the equipments residual value?

A) $65,000

B) $33,000

C) $32,000

D) none of the above

9) Which of the following is a shortcoming of ROI as a performance measure?

A) ROI can increase without any change in operations because of depreciation

B) It can encourage some undesirable behavior by managers

C) Both of the above

D) None of the above