Question
Required information [The following information applies to the questions displayed below.] Westerville Company reported the following results from last year's operations: Sales Variable expenses
Required information [The following information applies to the questions displayed below.] Westerville Company reported the following results from last year's operations: Sales Variable expenses Contribution margin Fixed expenses $1,400,000 510,000 890,000 610,000 $ 280,000 Average operating assets $ 875,000 Net operating income At the beginning of this year, the company has a $175,000 investment opportunity with the following cost and revenue characteristics: Sales $ 280,000 Contribution margin ratio. 50% of sales $ 98,000 Fixed expenses The company's minimum required rate of return is 15%. 15-a. Assume that the contribution margin ratio of the investment opportunity was 40% instead of 50%. If Westerville's 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? Yes No 15-b. Would the owners of the company want her to pursue the investment opportunity? Yes No
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