9. Westerville Company reported the following results from last years operations:

Sales $ 1,800,000

Variable expenses 435,000

Contribution margin 1,365,000

Fixed expenses 1,005,000

Net operating income $ 360,000

Average operating assets $ 1,200,000

At the beginning of this year, the company has a $300,000 investment opportunity with the following cost and revenue characteristics:

Sales $ 360,000

Contribution margin ratio 70 % of sales

Fixed expenses $ 216,000

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 ROI will it earn this year?

ROI %

10-a. If Westervilles chief executive officer will earn a bonus only if her ROI from this year exceeds her ROI from last year, would she pursue the investment opportunity?

multiple choice 1

Yes

No

10-b. Would the owners of the company want her to pursue the investment opportunity?

multiple choice 2

Yes

No

11. What is last years residual income?

Residual Income

12. What is the residual income of this years investment opportunity?

Residual Income

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

Residual Income

14. If Westervilles chief executive officer will earn a bonus only if her residual income from this year exceeds her residual income from last year, would she pursue the investment opportunity?

multiple choice 1

yes

no

5-a. Assume that the contribution margin ratio of the investment opportunity was 65% instead of 70%. If Westervilles Chief Executive Officer will earn a bonus only if her residual income from this year exceeds her residual income from last year, would she pursue the investment opportunity?

multiple choice 1

Yes

No

15-b. Would the owners of the company want her to pursue the investment opportunity?

multiple choice 2

Yes

No