Required information

The Foundational 15 [LO11-1, LO11-2]

[The following information applies to the questions displayed below.]

Westerville Company reported the following results from last years operations:

Sales	$	1,400,000
Variable expenses		680,000
Contribution margin		720,000
Fixed expenses		440,000
Net operating income	$	280,000
Average operating assets	$	875,000

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

Sales	$	480,000
Contribution margin ratio		80	% of sales
Fixed expenses	$	336,000

The companys minimum required rate of return is 15%.

Foundational 11-12

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?