Test 2

Question 1

True or False

The learning and growth perspective of the balanced scorecard evaluates the profitability of the strategy.

Answer 1

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Question 2

True or False

Employee satisfaction is a measure of the internal business perspective of the balanced scorecard.

Answer 2

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Question 3

True or False

The customer perspective under the balanced scorecard approach would include measures on cost reduction.

Answer 3

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Question 4

True or False

When implementing a balanced scorecard, the cause-and-effect linkages are always precise.

Answer 4

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Question 5

True or False
When evaluating managers and employees under the balanced scorecard approach, only financial measures should be considered.

Answer 5

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Question 6

True or False

An increase of operating income from one year to the next indicates a company’s strategy was successful

Answer 6

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Question 7

True or False
The number of complaints about a product is an example of a balanced-scorecard measure of the Learning and Growth perspective.

Answer 7

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Question 8

True or False

The FIRST step to successful balanced scorecard implementation is clarifying the organization’s vision and strategy.

Answer 8

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Question 9

True or False
A sustainability-balanced scorecard includes the usual four perspectives – financial, stakeholder, internal business process, and learning and growth – and introduces a fifth perspective, sustainability, which is linked to the other four perspectives.

Answer 9

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Question 10

True or False
The purpose of the balanced scorecard is BEST described as helping an organization to translate its mission and strategy into a set of performance measures that help to implement the strategy.

Answer 10

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Question 11

The balanced scorecard is said to be “balanced” because it measures:

a. short-term and long-term objectives
b. financial and nonfinancial objectives
c. internal and external objectives
d. All of these answers are correct.

Answer 11

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Question 12

The internal business processes perspective of the balanced scorecard comprises three subprocesses that address all of the following EXCEPT:
a. innovative processes used to create new
products, services, and processes
b. motivating current employees
c. providing service and support to the customer
after the sale
d. delivering existing products and services to best
meet the needs of customers

Answer 12

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Question 13

Identify the BEST description of the balanced scorecard’s financial perspective. To achieve our firm’s vision and strategy, how
a. can we obtain greater profits for the current
year?
b. can we increase shareholder value?
c. will we obtain continuous improvements?
d. can we secure greater customer satisfaction?

Answer 13

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Question 14

Identify the BEST description of the balanced scorecard’s internal business processes perspective. To achieve our firm’s vision and strategy,
a. how do we lower costs?
b. how do we motivate employees?
c. how can we obtain greater profits?
d. what processes will increase value to
customers?

Answer 14

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Question 15

All of the following relate to the balanced scorecard’s learning and growth perspective EXCEPT:
a. How do we achieve greater employee
satisfaction?
b. What new products do we create?
c. How do we provide information systems with
updated technology?
d. How will we motivate and empower our
employees?

Answer 15

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Question 16

Measures of the balanced scorecard’s customer perspective include:

a. market share
b. number of on-time deliveries
c. number of process improvements
d. revenue growth

Answer 16

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Question 17

Which of the following is NOT true of a good balanced scorecard?
a. It tells the story of a company’s strategy by
articulating a sequence of cause-and-effect
relationships.
b. It helps to communicate corporate strategy to all
members of the organization.
c. It identifies all measures, whether significant or
small, that help to implement strategy.
d. It uses nonfinancial measures to serve as
leading indicators of future financial
performance.

Answer 17

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Question 18

. Why is the inclusion of ‘environmental performance’ likely to become more common in a firm’s balanced scorecard?
a. Balanced scorecard must include all stakeholder
interests to be complete.
b. It is likely that investors will evaluate a firm’s
environmental record as well as its financial record.
c. Balanced scorecard acknowledges that it is no
longer adequate to focus on the major stakeholder
(the firm’s owner(s)).
d. Balanced scorecard acknowledges that numerous
stakeholders are important for business success.

Answer 18

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Question 19

On which of the following does a balanced scorecard approach focus on?

a. Strategic objectives
b. Critical success factors
c. Performance measures at all levels of the business
d. All of the given answers

Answer 19

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Question 20

Surveys of employee satisfaction is an example of a balanced-scorecard measure of the:

a. internal business process perspective
b. customer perspective
c. learning and growth perspective
d. financial perspective

Answer 20

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Question 21

True/False
Many common performance measures, such as customer satisfaction, rely on internal financial accounting
information.

Answer 21

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Question 22

True/False
Evaluating an executive’s performance using the annual return on investment would sharpen an
executive’s long-run focus

Answer 22

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Question 23

True/False
A major weakness of comparing two companies using only operating incomes as the basis of comparison
is this method ignores differences in the size of the investment required to earn the operating income.

Answer 23

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Question 24

True/False

Return on investment is also called the accrual accounting rate of return

Answer 24

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Question 25

True/False

Investment turnover is calculated by dividing investments by revenues

Answer 25

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Question 26

True/False
The objective of maximizing return on investment may induce managers of highly profitable divisions to
reject projects that from the viewpoint of the overall organization should be accepted.

Answer 26

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Question 27

True/False
Goal congruence is more likely to be promoted by using return on investment rather than residual income
as a measure of a subunit’s managerial performance.

Answer 27

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Question 28

True/False
Residual income calculations are similar to EVA® calculations because in each calculation there is a
charge for the division’s invested capital which is deducted from a measure of that division’s profit.

Answer 28

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Question 29

True/False
Economic value added, unlike residual income, charges managers for the costs of their investments in
long-term assets and working capital.

Answer 29

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Question 30

True/False
In an Economic Added Value calculation, the corporate charge for a division’s investment is based
entirely on the after-tax interest rate on the firm’s debt.

Answer 30

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Question 31

A report that measures financial and nonfinancial performance measures for various organization units in
a single report is called a(n):
a. balanced scorecard
b. financial report scorecard
c. imbalanced scorecard
d. unbalanced scorecard

Answer 31

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Question 32

During the past twelve months, the Aaron Corporation had a net income of $50,000. What is the amount
of the investment if the return on investment is 20%?
a. $100,000
b. $200,000
c. $250,000
d. $500,000

Answer 32

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Question 33

Return on investment can be increased by:

a. increasing operating assets
b. decreasing operating assets
c. decreasing revenues
d. Both b and c are correct.

Answer 33

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Question 34

After-tax operating income minus the after-tax weighted-average cost of capital multiplied by total assets
minus current liabilities equals:
a. return on investment
b. residual income
c. economic value added
d. weighted-average cost of capital

Answer 34

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Question 35

The Cybertronics Corporation reported the following information for its Cyclotron Division:
Revenues $1,000,000
Operating costs 600,000
Taxable income 200,000
Operating assets 500,000
Income is defined as operating income.
What is the Cyclotron Division's investment turnover ratio?
a. 2.00
b. 3.33
c. 2.50
d. 0.80

Answer 35

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Question 36

The Cybertronics Corporation reported the following information for its Cyclotron Division:
Revenues $1,000,000
Operating costs 600,000
Taxable income 200,000
Operating assets 500,000
Income is defined as operating income.
What is the Cyclotron Division's return on sales?
a. 0.20
b. 0.40
c. 0.50
d. 0.60

Answer 36

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Question 37

The Cybertronics Corporation reported the following information for its Cyclotron Division:
Revenues $1,000,000
Operating costs 600,000
Taxable income 200,000
Operating assets 500,000
Income is defined as operating income.
The after-tax average cost of all the long-term funds used by a corporation equals:
a. economic value added
b. return on investment
c. return on equity
d. weighted-average cost of capital

Answer 37

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Question 38

Springfield Corporation, whose tax rate is 40%, has two sources of funds: long-term debt with a market value of
$8,000,000 and an interest rate of 8%, and equity capital with a market value of $12,000,000 and a cost of equity
of 12%. Springfield has two operating divisions, the Blue division and the Gold division, with the following
financial measures for the current year:
Total Assets Current Liabilities Operating
Income
Blue Div. $9,500,000 $2,800,000 $1,055,000
Gold Div. $11,000,000 $2,200,000 $1,200,000
What is Springfield’s weighted average cost of capital (WACC)?
a. .0480
b. .0800
c. .1000
d. .0912

Answer 38

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Question 39

Springfield Corporation, whose tax rate is 40%, has two sources of funds: long-term debt with a market value of
$8,000,000 and an interest rate of 8%, and equity capital with a market value of $12,000,000 and a cost of equity
of 12%. Springfield has two operating divisions, the Blue division and the Gold division, with the following
financial measures for the current year:
Total Assets Current Liabilities Operating
Income
Blue Div. $9,500,000 $2,800,000 $1,055,000
Gold Div. $11,000,000 $2,200,000 $1,200,000
What is Economic Value Added (EVA®) for the Blue Division?
a. –$233,400
b. $21,960
c. $188,600
d. $433,960

Answer 39

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Question 40

Springfield Corporation, whose tax rate is 40%, has two sources of funds: long-term debt with a market value of
$8,000,000 and an interest rate of 8%, and equity capital with a market value of $12,000,000 and a cost of equity
of 12%. Springfield has two operating divisions, the Blue division and the Gold division, with the following
financial measures for the current year:
Total Assets Current Liabilities Operating
Income
Blue Div. $9,500,000 $2,800,000 $1,055,000
Gold Div. $11,000,000 $2,200,000 $1,200,000
A problem with rewarding managers only on the basis of residual income is that:
a. residual income is difficult to measure
b. on occasion the items in the residual income calculation are not quantifiable
c. residual income can depend on items over which the manager has little control
d. All of these answers are correct

Answer 40

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Question 41

True/False
A decision model is a formal method for making a choice, frequently involving both quantitative and
qualitative analyses.

Answer 41

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Question 42

True/False

Sunk costs are past costs that are unavoidable.

Answer 42

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Question 43

True/False

Answer 43

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