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 Net operating income Average operating assets $ 1,200,000 420,000 780,000 600.000 $ 180,000 $ 600,000 At the beginning of this year, the company has a $137,500 investment opportunity with the following cost and revenue characteristics: Sales Contribution margin ratio Fixed expenses $ 220,000 60% of sales $ 99,000 The company's minimum required rate of return is 20%. Required: 1. What is last year's margin? Margin 15% % 2. What is last year's turnover? (Round your answer to 1 decimal place.) Turnover 3. What is last year's return on investment (ROI)? (Round your intermediate calculations to 1 decimal place.) ROI 4. What is the margin related to this year's investment opportunity? Margin % 5. What is the turnover related to this year's investment opportunity? (Round your answer to 1 decimal place.) Turnover 6. What is the ROI related to this year's investment opportunity? (Do not round Intermediate calculations.) ROI % 7. If the company pursues the investment opportunity and otherwise performs the same as last year, what margin will it earn this year? (Round your percentage answer to 1 decimal place (i.e., 0.1234 should be entered as 12.3).) Margin % 8. If the company pursues the investment opportunity and otherwise performs the same as last year, what turnover will it earn this year? (Round your answer to 2 decimal places.) Turnover 9. If the company pursues the investment opportunity and otherwise performs the same as last year, what ROI will it earn this year? (Do not round intermediate calculations. Round your percentage answer to 1 decimal place (i.e., 0.1234 should be considered as 12.3).) ROI % 10-a. If Westerville's 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? Yes O No 10-b. Would the owners of the company want her to pursue the investment opportunity? Yes O No 11. What is last year's residual income? Residual income $ 60.000 12. What is the residual income of this year's investment opportunity? Residual income $ 5,500 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 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 O No 15-a. Assume that the contribution margin ratio of the investment opportunity was 50% instead of 60%. 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 O No 15-b. Would the owners of the company want her to pursue the investment opportunity? Yes No
