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21.     The more subjective the measures of performance, the more likely managers will exert effort.
     
22.     Accounting measures provide relatively subjective evaluations of performance.
     
23.     Rewards may be nonmonetary.
     
24.     The greater the influence of noncontrollable factors on responsibility center results, the more problems there are in using the results to represent a manager’s performance.
     
25.     Companies must pay managers more if the managers bear more risk, assuming the managers are risk averse.
     
26.     Usually, perfect measurement of a manager’s performance is worth its cost.
     
27.     A larger bonus portion compared with the guaranteed portion of a contract creates more incentive.
     

                    
28.     The amount of income generated by the investment is a better test of profitability than the return on investment.

29.     The income percentage of revenue is determined by multiplying return on investment by the capital turnover.


30.     ROI = income (or profit) / investment.
     
31.     In all ROI calculations, invested capital should be measured as an average for the period under review.
     
32.     ROI = return on sales / capital turnover.
     
33.     Return on sales = revenue / income.
     
34.     Capital turnover = revenue / invested capital
     
35.     Return on sales can be increased by increasing expenses.
     
36.     Capital turnover can be increased by decreasing investment.
     
37.     Increasing capital turnover is one of the advantages of implementing the JIT philosophy.
     
38.     Cost of capital is the company’s cost of capital multiplied by the amount of the investment.
     
39.     ROI tells us how much a company’s after-tax operating income exceeds what it is paying for capital.
     
40.     EVA = adjusted after-tax operating income – (cost of invested capital – a percentage x adjusted average invested capital).
     

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