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

Westerville Company reported the following results from last years operations:

Sales	$	1,300,000
Variable expenses		440,000
Contribution margin		860,000
Fixed expenses		600,000
Net operating income	$	260,000
Average operating assets	$	812,500

At the beginning of this year, the company has a $162,500 investment opportunity with the following cost and revenue characteristics:

Sales	$	260,000
Contribution margin ratio		80	% of sales
Fixed expenses	$	182,000

The companys minimum required rate of return is 15%.

10-a. If Westervilles 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 or No

10-b. Would the owners of the company want her to pursue the investment opportunity?

Yes or No

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?

14. If Westervilles 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 or No

15-a. Assume that the contribution margin ratio of the investment opportunity was 75% instead of 80%. If Westervilles 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 or No

15-b. Would the owners of the company want her to pursue the investment opportunity?

Yes or No