ACC 213: Chapter Eleven Handouts True/False 1. Return on investment (ROI) equals margin multiplied by sales 2. When used in return on investment (ROI) calculations, turnover equals sales divided by average operating assets 3. Net operating income is income before interest and taxes 4. An advantage of using ROI to evaluate performance is that it encourages the manager to reduce the investment in operating assets as well as increase net operating income. 5. All other things the same, an increase in unit sales will normally result in an increase in the return on investment 6. The use of return on investment (ROI) as a performance measure may lead managers to reject a project that would be favorable for the company as a whole. 7. Land held for possible plant expansion would be included as an operating asset when computing return on investment (ROI) 8. A change in sales has no effect on margin and turnover. 9. Suppose a company evaluates divisional performance using both ROi and residual income. The company's minimum required rate of return for the purposes of residual income calculations is 12%M a division has a residual income of$8,000, then its Rol is less than 12%. 10. If a company contains a number of investment centers of differing sizes, returm on investment (ROI) should be used rather than residual income to rank the financial performance of the divisions 11. ROI and residual income are tools used to evaluate managerial performance in investment centers. 12. Residual income should be used to evaluate an investment center rather than a cost or profit center. 13. Residual income can be used most effectively in comparing the performance of divisions of different size