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The Eastland Postal Service is government owned. The government requires it to provide a parcel delivery service to every home and business in Eastland at a low price which is set by the government. Express Couriers Co is a privately owned parcel delivery company that also operates in Eastland. It is not subject to government regulation and most of its deliveries are to large businesses located in Eastland’s capital city. You have been asked to assess the relative efficiency of the management of the two organisations.
21. Which of the following factors should NOT be allowed for when comparing the ROCE of the two organisations to assess the efficiency of their management?
A.Differences in prices charged
B.Differences in objectives pursued
C.Differences in workforce motivation
D.Differences in geographic areas servedThe correct answer is C.
Workforce motivation is within the control of management of both organisations; the other factors are outside management’s control.
Should the not be A and B since both price and objectives depend on the organization type? the factors including workforce motivation are under a manager’s influence.
An investment centre earns a return on investment of 18% and a residual income of $300,000. The cost of capital is 15%. A new project offers a return on capital employed of 17%.
14. If the new project were adopted, would the investment centre’s return on investment and residual income increase or decrease?
Return on investment Decrease
Residual income Increase
Tutorial note: The new project’s return on investment is less than that of the investment centre and this will result in a reduction in the centre’s return on investment. However because the project offers a return higher than the cost of capital it will increase the investment centre’s residual income.Does RI increase because ROCE is higher so the company will get a surplus profit from the project, which it will add to its current profits and therefore there will more profits to deduct notional interest from?
First question:
See my reply to a previous question about this:
https://opentuition.com/topic/roce-wordy-qn/
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