# answer the following questions using the information below carriage incorporated man 4309250

Answer the following questions using the information below:

Carriage Incorporated manufactures horse carriages. The company has two divisions, Wheels and Assembly. Because of different accounting methods and inflation rates, the company is considering multiple evaluation measures. The following information is provided for 2009:

 ASSETS INCOME Book value Current value Book value Current value Wheels \$485,000 \$550,000 \$120,000 \$140,000 Assembly \$750,000 \$1,200,000 \$160,000 \$172,500

The company is currently using a 12% required rate of return.

4) What are Wheels's and Assembly's return on investment based on book values, respectively?

A) 0.21; 0.25

B) 0.25; 0.21

C) 0.14; 0.25

D) 0.25; 0.14

5) What are Wheels's and Assembly's return on investment based on current values, respectively?

A) 0.21; 0.25

B) 0.25; 0.21

C) 0.14; 0.25

D) 0.25; 0.14

6) What are Wheels's and Assembly's residual incomes based on book values, respectively?

A) \$74,000; \$28,500

B) \$61,800; \$70,000

C) \$63,500; \$59.500

D) \$28,500; \$74,000

7) The cost today of purchasing an asset identical to the one currently held is called a(n):

A) actual cost

B) current cost

C) dual cost

D) fixed cost

8) Residual income calculations are similar to EVA® calculations because in each calculation there is a charge for the division's invested capital which is deducted from a measure of that division's profit.

9) Current cost return on investment is a better measure of the current economic returns from an investment than historical cost return on investment.

10) A firm will see a difference in the return on investment amount depending if they use historical cost or current cost valuation methods for the assets.

11) Using net book value as an investment base is consistent with the amount of total assets shown in the conventional balance sheet.

12) Using net book value as an investment base will result in a lower ROI than using gross book value as an investment base.

13) When using the historical cost of assets for calculation of return on investment, is it better to use the gross book value of the assets or the net book value of the assets ? Discuss.

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