1. Which of the following statements is true?

a. Increasing sales while holding expenses constant will decrease margin.

b. Increasing sales while holding expenses constant will increase margin.

c. Increasing sales while holding average operating assets constant will increase margin.

d. Increasing sales while holding average operating assets constant will decrease margin.

2. Which of the following is a criticism of return on investment (ROI)?

a. A manager who is evaluated using ROI may reject investment opportunities that lower her ROI even though the investment would be profitable for the company as a whole.

b. A managers non-operating assets are excluded from the calculation of ROI.

c. A manager can control turnover, but is unable to control margin even though it influences the calculation of ROI.

d. A manager can control margin, but is unable to control turnover even though it influences the calculation of ROI.

3. Which of the following statements is true?

a. Using residual income to evaluate managers will motivate them to pursue investments that increase their residual income even if it lowers their return on investment (ROI).

b. Using residual income to evaluate managers will motivate them to pursue investments that increase their return on investment (ROI) even if it lowers their residual income.

c. Using residual income to evaluate managers will motivate them to pursue investments that increase their residual income only when it also increases their return on investment (ROI).

d. Using residual income to evaluate managers will motivate them to pursue investments that increase their return on investment (ROI) even though they do not earn enough net operating income to exceed the minimum required return on operating assets.