7-13

Westerville Company reported the following results from last years operations:

Sales	$	1,500,000
Variable expenses		690,000
Contribution margin		810,000
Fixed expenses		435,000
Net operating income	$	375,000
Average operating assets	$	1,250,000

At the beginning of this year, the company has a $350,000 investment opportunity with the following cost and revenue characteristics:

Sales	$	420,000
Contribution margin ratio		70	% of sales
Fixed expenses	$	252,000

The companys minimum required rate of return is 10%.

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