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The Puma health plan uses return on investment (ROI) and residual income (RI) to measure the performance of its investment centers. Two of these investment centers are identified as X and Y. Investment Center X earns $10,000,000 in operating income on controllable investments of $50,000,000, and it has total revenues of $60,000,000. Investment Center Y earns $2,000,000 in operating income on controllable investments of $8,000,000, and it has total revenues of $10,000,000. Both centers have a minimum required rate of return of 15%.
One likely way in which Investment Center X or Y could effectively increase its ROI is by
Suggested Answer: B
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40 comments · newest first
LO
Lorean
11 months ago
X's income is impressive, but can it be maintained?
TR
Tracie
11 months ago
C seems like the best choice for sustainable growth.
LO
Lore
12 months ago
Wait, can increasing expenses really boost operating income?
AL
Alexia
12 months ago
Totally agree, focusing on revenue is key!
AL
Aleta
1 year ago
Investment Center X has a much higher ROI than Y.
LO
Lore
1 year ago
I recall a similar question where we analyzed the impact of controllable investments on ROI. I think focusing on that could be key for both centers.
JA
Jame
1 year ago
I'm a bit uncertain about option D. Increasing expenses to boost operating income seems risky; it might not guarantee a better ROI.
LI
Lino
1 year ago
I think option C makes sense because if revenues and operating income both increase, it should positively impact ROI, right?
CL
Clorinda
1 year ago
I remember we discussed how increasing total revenues could help improve ROI, but I'm not sure if it should be the only focus.
KA
Kattie
1 year ago
I'm not sure about this one. Increasing total revenues alone (option A) doesn't necessarily improve ROI, and increasing expenses (option D) would just lower ROI. I'm leaning towards option B, increasing the controllable investments, but I'm not totally confident.
ET
Ettie
1 year ago
Okay, I think I've got this. The question is asking about how to effectively increase ROI, so the answer has to be something that improves the ROI calculation, which is operating income divided by controllable investments. Option C seems like the best choice - increasing revenues and operating income proportionately.
NI
Nieves
1 year ago
Hmm, I'm a bit confused. Do we need to consider both ROI and RI, or just focus on maximizing ROI? The question mentions both metrics, but the answer choices seem to be about ROI only.
LI
Lindy
1 year ago
This seems like a straightforward question about maximizing ROI. I think the key is to focus on the relationship between revenues, operating income, and investments.
PE
Peter
1 year ago
This is a good question to test our understanding of performance optimization. I'll need to carefully consider the options and make sure I select the two most relevant reasons.
RO
Rose
1 year ago
I'm a bit confused on the difference between the tenant types. Is the "management tenant" responsible for managing the firewalls? That could be a possibility, but I'm not sure.
IN
In
2 years ago
Option D: Throw money at the problem and hope it goes away. That's the corporate way, right?
AN
Annelle
1 year ago
C) Increasing total revenues, accompanied by a proportionate increase in operating income
NO
Noel
1 year ago
B) Increasing its controllable investments
JA
James
1 year ago
A) Focusing only on increasing its total revenues
ES
Esteban
2 years ago
Ah, the age-old dilemma of ROI vs. RI. This question is like asking whether to focus on making money or saving money. I think I'll go with the one that won't land me in the poorhouse.
GL
Glenn
1 year ago
A) Focusing only on increasing its total revenues
GL
Glenn
1 year ago
C) Increasing total revenues, accompanied by a proportionate increase in operating income
GL
Glenn
1 year ago
B) Increasing its controllable investments
ST
Stevie
2 years ago
The key here is to maximize the return on the controllable investments. Option B seems like the logical choice, but I wonder if the exam is trying to trick us.
ER
Eric
1 year ago
I agree, increasing controllable investments would directly impact the ROI.
NO
Noah
1 year ago
I think option B is the best choice to maximize ROI.
BR
Brianne
1 year ago
C) Increasing total revenues, accompanied by a proportionate increase in operating income
CH
Chantell
1 year ago
B) Increasing its controllable investments
BR
Bronwyn
2 years ago
A) Focusing only on increasing its total revenues
JO
Josue
2 years ago
Increasing expenses to boost operating income? That's like trying to lose weight by eating more. Option D is a definite no-go.
FI
Fidelia
2 years ago
Increasing expenses to boost operating income? That's like trying to lose weight by eating more. Option D is a definite no-go.
LU
Lura
2 years ago
A) Focusing only on increasing its total revenues
LE
Lenna
2 years ago
Hmm, focusing on increasing total revenues sounds tempting, but that doesn't necessarily improve the ROI. I think option C is the way to go - increase revenues and operating income proportionately to maintain the ROI.
KA
Kanisha
1 year ago
I see your point, but increasing expenses to boost operating income might not be the most efficient way to increase ROI.
AN
Annamae
1 year ago
Increasing controllable investments could also help improve the ROI.
OC
Ocie
2 years ago
I think option C makes sense, it's important to maintain a balance between revenues and operating income.
CO
Corinne
2 years ago
I agree, increasing total revenues alone might not be the best strategy.
DE
Delisa
2 years ago
But wouldn't increasing total revenues, accompanied by a proportionate increase in operating income, also help improve ROI?
TA
Tammara
2 years ago
I agree with Christene. By increasing controllable investments, they can increase ROI.
CH
Christene
2 years ago
I think the answer is B) Increasing its controllable investments.