Company reported the following results from last years operations:

Sales $3,500,000

Variable expenses 650,000

Contribution margin 2,850,000

Fixed expenses 580,000

Net operating income $2,270,000

Average operating assets $2,000,000

At the beginning of this year, the company has a $2,000,000 investment opportunity with the following cost and revenue characteristics:

Sales $200,000

Contribution margin ratio 80% of sales

Fixed expenses $150,000

The companys minimum required rate of return is 15%.

Questions:

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

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

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

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