You have recently taken a position as CFO of Incremental Corp, a manufacturer of consumer electronics. The industry is regarded as one of the more stable across the economic spectrum and offers good long-term growth prospects. In addition to Incremental Corp, there are several other well-capitalized competitors, and each commands roughly identical market shares. Each competitor has highly efficient manufacturing processes and operates at virtually identical margins. In your new position as CFO, your incentive compensation plan is primarily driven by ROPI. Incremental Corp. has historically been ROPI neutral while its peers in have been ROPI positive. Looking at the information below, what would be your immediate objectives for Incremental Corp. in order to drive positive ROPI. Explain your actions
Incremental Corp. Industry Peers
Net operating profit margin (NOPM) 12.0% 12.0%
Working Capital as % of NOA 20.0% 15.0%
Debt to market value of equity (%) 0.0% 34.0%
Cost of Debt 4.0% 4.0%
Cost of Equity 9.0% 10.0%
Weighted average cost of capital (WACC) 9.0% 8.0%