The ClipperCorporation

# The ClipperCorporation - The Clipper Corporation had net...

This preview shows page 1. Sign up to view the full content.

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
This is the end of the preview. Sign up to access the rest of the document.

## 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.

Ask a homework question - tutors are online