Beach Corporation Has a Return on Investment of 15

question 82

Multiple Choice

Beach Corporation has a return on investment of 15%. A Beach division, which currently has a 13% ROI and $750,000 of residual income, is contemplating a massive new investment that will (1) reduce divisional ROI and (2) produce $120,000 of residual income. If Beach strives for goal congruence, the investment:

• A) should not be acquired because it reduces divisional ROI.
• B) should not be acquired because it produces $120,000 of residual income.
• C) should not be acquired because the division's ROI is less than the corporate ROI before the investment is considered.
• D) should be acquired because it produces $120,000 of residual income for the division.
• E) should be acquired because after the acquisition, the division's ROI and residual income are both positive numbers.

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Definitions:

Partial Equity Method

The partial equity method is an accounting approach used when an investing company has significant influence, but not full control, over an investee, recognizing income to the extent dividends are received.

Goodwill

An intangible asset that arises when a company acquires another business for more than the fair value of its net identifiable assets.

U.S. GAAP

Generally Accepted Accounting Principles in the United States, a set of guidelines and standards for financial reporting and accounting practices to ensure consistency and transparency.

IFRS

International Financial Reporting Standards, which are a set of accounting standards developed by the International Accounting Standards Board (IASB) for the preparation of public company financial statements globally.