Sagnik B.

asked • 01/15/15

Return On Investment Question Managerial Accounting Need Help

The Clipper Corporation had net operating income of $380,000 and average operating assets of $2,000,000. The corporation's minimum required return on new projects is 18%. The U.S. division of the corporation is considering an investment of $70,000 in a project that will generate net income of $13,000. The U.S. Division currently earns a return on investment rate of 20%. The U.S. division manager can be evaluated on either the Division's return on investment or the division's residual income. Which of the following is true?

A) The U.S. Division Manager would only invest in the new project only if the division's return on investment is used for evaluating division manager
B) The U.S. Division Manager would only invest in project if division's residual income is used for evaluating manager
C) The U.S. Division Manager would always invest in the new project whether the division's return on investment or residual income is used in evaluating the division manager
D) he U.S. Division Manager would never invest in the new project whether the division's return on investment or residual income is used in evaluating the division manager
E) None
 
Answer was B) I believe But I need help as to how with steps, and why it is.

1 Expert Answer

By:

Sam L H. answered • 10/26/15

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