The Clipper Corporation Had Net Operating Income of $380,000 and Average

question 146

Essay

The Clipper Corporation had net operating income of $380,000 and average operating assets of $2,000,000. The corporation requires a return on investment of 18%.
Required:
a. Calculate the company's return on investment (ROI) and residual income (RI).
b. Clipper Corporation is considering an investment of $70,000 in a project that will generate annual net operating income of $12,950. Would it be in the best interests of the company to make this investment?
c. Clipper Corporation is considering an investment of $70,000 in a project that will generate annual net operating income of $12,950. If the division planning to make the investment currently has a return on investment of 20% and its manager is evaluated based on the division's return on investment, will the division manager be inclined to request funds to make this investment?
d. Clipper Corporation is considering an investment of $70,000 in a project that will generate annual net operating income of $12,950. If the division planning to make the investment currently has a residual income of $50,000 and its manager is evaluated based on the division's residual income, will the division manager be inclined to request funds to make this investment?

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Definitions:

Information Evaluation

The process of assessing the quality, relevance, and reliability of information, typically before making a decision based on that information.

Product Preferences

Individual or collective consumer choices or inclinations towards certain products over others based on factors like quality, price, or brand loyalty.

Purchasing Intentions

The likelihood or propensity of consumers to buy a product or service in the near future.

Attitudes of Others

The perceptions, beliefs, or feelings held by individuals apart from oneself, which can influence interpersonal interactions and dynamics.