The ClipperCorporation

The ClipperCorporation - The Clipper Corporation had net...

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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). ROI=Net operating income/Average operating assets=380000/2000000=19% Required income=Average operating assets*required rate of return =2000000*18% =$360000 Residual Income=Net operating income-Required income = $380000-$360000 =$20000 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? Return on investment=12950/70000=18.50% Since return on investment is higher than required rate of return (18%), it is in interest 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
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This note was uploaded on 12/11/2011 for the course ACC ACC 331 taught by Professor Kenny during the Spring '11 term at St. Leo.

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