Managers May Use the Accounting Rate of Return to Evaluate

question 146

Multiple Choice

Managers may use the accounting rate of return to evaluate potential investment projects because

• A) debt contracts require that a firm maintain certain ratios that are affected by income and long-term asset levels.
• B) it serves as a screening measure to insure that new investments do not affect key financial ratios.
• C) bonuses to managers may be based on accounting income and/or return on assets.
• D) it can be tied to the manager's personal income.
• E) All of these.

Determine the effects of stock issuance and repurchase on shareholders’ equity.

Apply knowledge of cumulative preferred stock dividends and their impact on corporate obligations.

Understand the effects of quantity supplied being greater than quantity demanded.

Analyze the impact of government-imposed price ceilings and price floors on market equilibrium.

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Definitions:

Perpetual Inventory

An inventory system that records changes in inventory levels immediately as they occur, facilitating real-time tracking of stock.

Financial Statements

Reports that summarize the financial condition and operations of a business, including balance sheet, income statement, and cash flow statement.

Net Realizable Value

The estimated selling price of goods, minus the costs of their completion and the costs required to make the sale, used in inventory valuation and accounts receivable.

Merchandise Value

The total worth of goods held for resale by a retail or wholesale business, typically assessed at cost or market price.