Question
The contribution format income statement for Huerra Company for last year is given below: Total Unit Sales $4,000,000 $80.00 Variable expenses 2,800,000 56.00 Contribution margin
The contribution format income statement for Huerra Company for last year is given below:
The company had average operating assets of $2,000,000 during the year. Required:
For each of the following questions, indicate whether the margin and turnover will increase, decrease, or remain unchanged as a result of the events described, and then compute the new ROI figure. Consider each question separately, starting in each case from the data used to compute the original ROI in (1) above.
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Required:
- Using a 16% discount rate, compute the net present value of each of the three investments. On which investment(s) did Linda earn a 16% rate of return? (Round computations to the nearest whole dollar.)
- Considering all three investments together, did Linda earn a 16% rate of return? Explain.
- Linda wants to use the $239,700 proceeds ($160,000 + $27,000 + $52,700 = $239,700) from sale of the securities to open a retail store under a 12-year franchise contract. What minimum annual net cash inflow must the store generate for Linda to earn a 14% return over the 12-year period? Round computations to the nearest whole dollar.
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