Reference: 22_08 -Fred Smith and Joe Barney Are Managers of Two Product

question 40

Multiple Choice

Reference: 22_08
$\begin{array}{lrr}\text { Quarry Co.}&\text { Smith}&\text { Barney}\\\text { Revenue } & \$ 412,000 & \$ 450,000 \\\text { Costs } & 380,000 & 411,000 \\\text { Average assets } & 400,000 & 600,000\end{array}$

-Fred Smith and Joe Barney are managers of two product lines for Quarry Company.One of them is a candidate for promotion based on performance.Using the data above,which of the following is a true statement?

• A) Smith is outperforming Barney as measured by return on investment center assets.
• B) Barney is outperforming Smith as measured by return on investment center assets.
• C) The return in investment center assets is the same for both
• D) If target performance is a 7% return on assets, both investment centers are performing above the target level.
• E) If target performance is a 7% return on assets, the residual income for both centers is positive.

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Definitions:

Reverse Repurchase Agreement

A financial transaction in which one party sells an asset to another party with a promise to repurchase it at a later date at an agreed upon price.

Repurchase Agreement

A repurchase agreement, or repo, is a short-term borrowing for dealers in government securities wherein the dealer sells the government securities to investors, usually on an overnight basis, and buys them back the following day.

T-Bills

Short-term government securities with maturity periods typically less than one year, considered risk-free investments.

Federal Taxes

Taxes imposed by the federal government on income, sales, imports, estates, and gifts.