Question

Suppose an office building is owned for which long-term leases have been signed, the tenants pay utilities and operating costs, and straight-line depreciation is taken. The rate of return on the book value of this investment can be expected to __________

a. increase over time

b. vary randomly over time

c. remain constant over time

d. decrease over time

An organization’s required rate of return is 13%. The ROI of Divisions A and B, respectively, is 10% and 15%. Each Division is considering a project that will have a 12% rate of return. If ROI is used to evaluate divisions, which of the following statements is true?

a. Division A will accept, and Division B will reject, the project

b. Both divisions will accept the project

c. Both divisions will reject the project

d. Division A will reject, and Division B will accept, the project

Answer 1

1] Suppose an office building is owned for which long-term leases have been signed, the tenants pay utilities and operating costs, and straight-line depreciation is taken. The rate of return on the book value of this investment can be expected to __________

a. increase over time

The book value keeps on decreasing pushing up the rate of return.

2] An organization’s required rate of return is 13%. The ROI of Divisions A and B, respectively, is 10% and 15%. Each Division is considering a project that will have a 12% rate of return. If ROI is used to evaluate divisions, which of the following statements is true?

a. Division A will accept, and Division B will reject, the project

Accepting the project will increase overall ROI of A but decrease the overall ROI of B. As rewards are based on ROI, A will benefit but B will lose.