XYZ INC Has Several Divisions and the One Managed by Dr

question 16

Multiple Choice

XYZ INC has several divisions and the one managed by Dr. Donaldson has asset base of $4 million and earnings after taxes is $2 million. A new project would earn $2 million per year on an investment of $3 million. If the new project is on, Mr. Donaldson's bonus should not be based on:

• A) EVA.
• B) ROA.
• C) Sales.
• D) Accounting profits.
• E) Cash flows.

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Definitions:

Many Sellers

A characteristic of competitive markets where a large number of sellers offer similar or identical products, preventing any single seller from influencing market prices.

Distinguish

To recognize or treat someone or something as different from others.

Marginal Cost

The increase in total production costs resulting from the production of one additional unit of a product or service.

Average Total Cost

The total cost of production divided by the quantity of output produced, representing the average cost per unit of output.