Principles of Managerial Accounting · free preview
Evaluating Segments and Projects with Return on Investment
Return on investment evaluates segments and projects by relating earnings to the assets employed, and while powerful for comparison, it can discourage investment center managers from value-creating growth.
1. ROI for segments and projects
ROI for segments and projects
2. Decomposing for diagnosis
Decomposing for diagnosis
3. The growth-blocking flaw
The growth-blocking flaw
4. Counterweights
Counterweights
5. ROI normalization benefit
What does ROI's normalization accomplish?
6. Decomposition factors
ROI decomposes into which two factors? Use the figures from the worked example in this lesson and state the result in the requested units.
7. Dilution rejection
A 15 percent ROI segment rejects a 12 percent project costing 200,000 dollars with a 10 percent cost of capital. What is the evaluation flaw?
8. Counterweight role of residual income
How does residual income counteract ROI's growth-blocking flaw?
9. Turnover factor
Asset ____ equals sales divided by average operating assets. One word.
10. Dilution fear
ROI-managed managers may avoid profitable projects that ____ the segment's ratio. One word.
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