Explain and give an example as to how a manager can manipulate the return on investment figure in the short run. Why are these manipulations bad for the company in the long run? Suggest some alternative performance evaluation and compensation schemes.

Q: Conventional wisdom says that one should measure a manager’s investment performance over an entire…

A: The arguments to support or contradict the convention are:

Q: You are running a company with two divisions. One division is high risk and the other division is…

A: Risk - Return Relationship: As per the risk-return relationship or risk-return tradeoff, the higher…

Q: How can managers determine the breakeven point or the output needed to achieve a target operating…

A: Lets start with the basic understanding of break even point. Break even point is a point at which…

Q: “When evaluating a company’s performance on the time dimension, managers should only consider…

A: The role of financial measures in evaluating a company's performance is very less than the…

Q: Which of the following statements about operating leverage is false?

A: The answer for the multiple choice question and relevant explanation are presented hereunder :

Q: What does the Law of Large Numbers tell us about investment managers’ performance? a. That great…

A: The large numbers theorem states that when the same experiment/study is repeated independently a…

Q: How are conflicts between the shareholders and the management created? Which of the following is…

A: Conflicts between the shareholders and the management majorly arise due to the differences in…

Q: Identify and explain the criticisms of using return on investment (ROI) as the onlyperformance…

A:

Q: Break-even analysis is of limited use to management because a company cannot survive by just…

A: Breakeven analysis involves comparison of fixed cost, variable cost and sales price to derive the…

Q: What is the biggest disadvantage of using ROI to evaluate investment centers?

A: Return on Investment: Under return on Investment, the investment opportunity with the highest rate…

Q: Does using cost volume profit sensitivity analysis have any drawbacks or possible negative impacts…

A: Cost volume profit analysis is used to control or monitor a sensitive analysis which depicts changes…

Q: What is turnover? What does it measure? Describe this in your own words. Writing a formula is not a…

A: What is the Turnover   Turnover is the Gross sale made by the company. A company may selling the…

Q: What is return on marketing investment (rOMI)? howdoes considering marketing as an investment…

A: Return on marketing expenditure, or ROMI, is an indicator utilized to evaluate the success of a…

Q: Faced with a long-run make-or-buy decision, the manager should do all of the following except: a.…

A: Ans. While considering a make - or- buy decision a manager is expected to do a lots of study and…

Q: Assume that the manager of the club is able to reduce expenses by $2,880 without any change in sales…

A: Return on investment is given as follows:- ROI = (Net operating income/ Average operating assets)…

Q: what is meant by the term break-even point? why should a manager be concerned about the breakeven…

A: Financial statements are statements which states the business activities performed by the company .…

Q: What is the major shortcoming of using operating income as a performance measure for investment…

A: The company's aim will be to increase the profitability of the company. The profits can be arrived…

Q: and explaint the following agency problems in the context financing an entrepreneurial firm: A.…

A: An agency dilemma is a conflict of interest that exists in every connection in which one person is…

Q: What advice would you give those who want to invest in this company? (recommendations)  (based on…

A: Before investing in any companies’ securities, performance and growth is evaluated by considering…

Q: In what way can the use of ROI as a performance measure for investment centers lead to bad…

A: ROI:   It is a measure on the amount of return on a particular investment with respect to the…

Q: In what ways might using ROI as a performance indicator for investment centers lead to poor…

A: ROI: It measures the amount of return on a specific investment to the cost of the investment. The…

Q: Wouldn't it be beneficial for the company if both investment turnover and return on investment are…

A: Ratio analysis is the measure through which company is able to take decision for the future policies…

Q: Criticisms of return on investment as the only performancemeasure include:a. ROI focuses on…

A: Return on investment is a measure used compare the benefit received by the investors when compared…

Q: What is a major shortcoming of just using Income from Operations as a performance measure for…

A: Income from operations states the results of deducting the operating expenses from the gross profit.…

Q: What is the major shortcoming of using income from operations as a performance measure for…

A: Investment centre are who do investment of organisation to increase income.

Q: How can managers determine the breakeven point or the output needed to achieve a target operating…

A: The break-even point is defined as the moment at which profit or loss equals zero. A break-even…

Q: How may using ROI as a success indicator for investment centers lead to poor decisions? How does the…

A: ROI: It calculates the amount of return on a particular investment about the investment's cost. The…

Q: how do compensation plans, including bonus structures, drive behavior?

A: “Since you have asked multiple questions, we will solve the first question for you. If you want any…

Q: What is the major shortcoming of using income from operations as a performance measure for…

A: Investment center: A department or unit or division of a corporation where its manager is assigned…

Q: Why might a manager exhibit a behavioral tendency to inappropriately consider sunk costs in making a…

A: Sunk Costs: Sunk costs are those costs incurred in the past and it cannot be changed unless if any…

Q: key flaw in utilizing income from operations as a performance indicator for investment centers

A: Performance indicator means the factors used to analyze the operations of a business.

Q: Please explain a major shortcoming of using income from operations as a performance measure for…

A: Invesment centers are those units or organisations that a business will utilise its capital to…

Q: Which of the following statements about operating leverage is false? O a. Keeping all factors…

A: Operating leverage: It is a cost account accounting method or technique used by the firm to measure…

Q: disadvantage of utilizing income from operations as a performance indicator

A: Income from operations means the excess of revenues from business operations than cost of conducting…

Q: In what way can the use of ROI as a performance measure for investment centers lead to baddecisions?

A: Return On Investment (ROI): It is a measure on the amount of return on a particular investment with…

Q: way a manager could improve turnover

A: Turnover is a important term used in accounting, taxation and business. The success of the business…

Q: What questions should managers answer when considering dropping a product or segment?

A: Drop or Keep Decision: When a product or segment of a business is costing more money than earning,…

Q: Which of the following is not a measure that management can use in evaluating and controlling…

A: The investment centers are typically very large divisions of a company. Investment center managers…

Q: Where management's bonuses are tied to profit-based performance measures, management may have an…

A: Return on assets is a profit-based performance measure, when the value of assets increases the…

Managing Agency Conflict

Conflict is defined as an act of disagreement between two parties caused by uncertainties between them. The conflict has a negative outcome that affects both parties involved in the argument. Conflict arises when the parties' thoughts do not align or go in opposite directions. Conflicts have negative consequences for both the individual and the business. As a result, it should be avoided.