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:

Sustainable Competitive Advantage

The ability to outperform rivals in ways that are difficult or costly to imitate.

Competitive Advantage

The unique qualities or conditions that enable a business to outperform its competitors and achieve superior profitability.

Major Opportunities

Significant chances or openings that arise and can lead to growth, improvement, or competitive advantage if seized effectively.

Sustainable Competitive Advantage

is an enduring edge over competitors, achieved through unique resources or capabilities that are difficult for rivals to imitate.