What is the primary disadvantage of using return on investment (ROI) rather than residual income (RI) to evaluate the performance of investment center managers?
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1 .Under the Sarbanes-Oxley Act of 2002, which of the following statements is correct regarding an issuer's audit committee financial expert?
A If an issuer does not have an audit committee financial expert, the issuer must disclose the reason why the role is not filled. B The issuer must fill the role with an individual who has experience in the issuer's industry. C The issuer's current outside CPA firm's audit partner must be the audit ...
2 .Youngsten Electric is contemplating new projects for the next year that will require USD30,000,000 of new financing. In keeping with its capital structure, Youngsten plans to use debt & equity financing as follows:? Issue USD10,000,000 of 20-year bonds at a price of 101.5, with a coupon of 10%, and flotation costs of 2.5% of par value.? Use internal funds generated from earnings of USD20,000,000.The equity market is expected to earn 15%. U.S. treasury bonds currently are yielding 9%. The beta coefficient for Youngsten's common stock is estimated to be 0.8. Youngsten is subject to a 40% corporate income tax rate. Youngsten has a price/earnings ratio of 10, a constant dividend payout ratio of 40%, and an expected growth rate of 12%.Assume Youngsten has an after-tax cost of debt of 9% and an after-tax cost of equity of 15%. Youngsten's weighted average cost of capital is:
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3 .The Sarbanes-Oxley Act of 2002 requires that the officers of a corporation be held accountable to a code of ethics. According to the Act, codifications of ethical standards should include provisions for all of the following, except:
A Honest and ethical conduct. B Full, fair, accurate, and timely disclosure in periodic financial statements. C Prompt internal reporting of code provisions and accountability for adherence to the code. D Compliance with laws, rules, and regulations.
4 .A company has two divisions. Division A has operating income of USD500 and total assets of USD1,000. Division B has operating income of USD400 and total assets of USD1,600. The required rate of return for the company is 10%. The company's residual income would be which of the following amounts?
A USD640 B USD0 C USD900 D USD260
5 .Arnold Astor, CPA, is a local tax practitioner who has been asked to sit on the Board of BigLarge Corporation, a multinational issuer. Astor has never had any involvement either as an employee or as an auditor with publicly traded companies but does teach an accounting principles class at the community college. Under the provisions of the Sarbanes-Oxley Act of 2002:
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A USD0 B USD5,000 C USD50,000 D USD45,000
8 .The imputed interest rate used in the residual income approach for performance measurement and evaluation canbest be characterized as the:
A Historical weighted average cost of capital for the company. B Average return on assets employed over a particular time period. C Average return on investment that has been earned by the company over a particular time period. D Average prime lending rate for the year being evaluated.
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A 20.31% B 20% C 25% D 28.57%
