Assessment for Chapter 24 & 25

VALMETH

1. What is the formula in computing for Return on Invested Capital (ROIC)?

A. Investment Capital multiplied by Operating Profit.
B. Net Income plus Invested Capital.
C. Net Operating Profit After Tax (NOPAT) divided by Invested Capital.
D. Net Operating Assets minus tax multiplied by Invested Capital.

Answer: C

2. If CFROI is equal to IRR, IRR is ____ ROIC

A. greater than
B. less than
C. Equal to
D. None of the above

Answer: A

3. Considered a more concise performance measure and is always in line with value creation for
businesses that use little to no capital.
A. Revenue
B. Cash flow
C. Economic profit
D. Net Income

Answer: C

4. Which statement is true for CFROI?

A. The effect of CFROI on a business implies that the net invested capital and aggregate earnings are
both growing together.
B. Cash flow return on investment is based on cash components and is not always superior or better
than ROIC.
C. When CFROI is equal to IRR, the operating cash flow is not constant.
D. The formula for CFROI is NOPAT divided by Invested capital.
Answer: A

5. What is Return On Invested Capital (ROIC) used to measure?

A. Compare companies for their success in having invested capital and relative return in capital
investments.
B. The steady cash flow of businesses from their investments.
C. Aggregate operating cash flows and gross invested capital.
D. None of the above.

Answer: A

6. Not recognizing expenses such as goodwill, patent, and R&D as an investment would lead to ____ the
company's invested capital and _____ Its return on capital.
A. underestimating : overstating
B. overstating : underestimating
C. understated : understated
D. overstating : overstating

Answer: A

7. Considered by businesses as a good measure of return in capital as it reflects economic return

accurately.
A. CROGI
B. CashROA
C. ROIC
D. CFROI

Answer: C

8. Which of the statements is true for ROIC?

A. Managers should not decide to outsource just to have a higher ROIC.
B. Managers focus their attention into the cash flows of the business to compute for ROIC.
C. Managers use ROIC because it does include inflation.
D. None of the above.
Answer: A

9. Used for businesses that consider steady and continuous cash flows that have high upfront investments
in capital.
A. cash flow return on investment
B. cash return on capital invested
C. cash return on gross investment
D. cash return on assets

Answer: A

10. Considered as a better measure of value creation?

A. cash flow return on investment
B. cash return on assets
C. return on capital employed
D. cash return on gross investment

Answer: A