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The Foundational 15 (Algo) [LO10-1, LO10-2]

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Westerville Company reported the following results from last years operations:

Sales	$ 1,200,000
Variable expenses	420,000
Contribution margin	780,000
Fixed expenses	600,000
Net operating income	$ 180,000
Average operating assets	$ 600,000

At the beginning of this year, the company has a $137,500 investment opportunity with the following cost and revenue characteristics:

Sales	$ 220,000
Contribution margin ratio	60	% of sales
Fixed expenses	$ 99,000

The companys minimum required rate of return is 20%.

5. What is the turnover related to this years investment opportunity?

6. What is the ROI related to this years investment opportunity?

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

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

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

11. What is last years residual income?

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

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