Explain the role of bench marking in evaluating managers.
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What factors affecting ROI does the DuPont method of profitability analysis highlight?
"Managers should be rewarded only on the basis of their performance measures. They should be paid no salary." Do you agree? Explain.
Comfy Corporation manufactures furniture in several divisions, including the patio furniture division. The manager of the patio furniture division plans to retre in two years The manager receives a bonus based on the division's ROl, which is currently \(7 \%\) One of the machines that the patio furniture division uses to manufacture the furniture is rather old and the manager must decide whether to replace it. The new machine would cost \(\$ 35,000\) and would last 10 years. It would have no salvage value. The old machine is fully depreciated and has no trade-in value. Comfy uses straight-line depreciation for all assets. The new machine, being new and more efficient, would save the company \(\$ 5,000\) per year in cash operating costs. The only difference between cash flow and net income is depreciation. The internal rate of return of the project is approximately $7 \%$. Comfy Corporation's's weighted-average cost of capital is 5\%. Comfy is not subject to any income taxes. 1\. Should Comfy Corporation replace the machine? Why or why not? 2\. Assume that "investment" is defined as average net long-term assets (that is, after depreciation) during the year. Compute the projects ROI for each of its first five years. . If the patio furniture manager is interested in maximizing his bonus, would he replace the machine before he retires? Why or why not? 3\. What can Comfy do to entice the manager to replace the machine before retiring?
What are the three steps in designing accounting-based performance measures?
Explain the incentive problems that can arise when employees must perform multiple tasks as part of their jobs.
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