2) Chance Company reported the following results from last years operations:

Sales. . . . . . . . . . . . . . . . . . . . . $1,500,000

Variable expenses. . . . . . . . . . 800,000

Contribution margin. . . . . . . . . . 700,000

Fixed expenses. . . . . . . . . . . . . 600,000

Net operating income. . . . . . . . . $ 100,000

Average operating assets. . . . . $625,000

This year, the company has a $70,000 investment opportunity with the following cost and revenue characteristics:

Sales. . . . . . . . . . . . . . . . . . . . . $250,000

Contribution margin ratio. . . . . 60% of sales

Fixed expenses. . . . . . . . . . . . . $110,000

The companys minimum required rate of return is 18%.

Required:

What is the residual income of this years investment opportunity?

If the company pursues the investment opportunity and otherwise performs the same as last year, what residual income will it earn this year?