The Foundational 15 (Static) [LO11-1, LO11-2]

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Westerville Company reported the following results from last years operations:

Sales	$ 1,000,000
Variable expenses	300,000
Contribution margin	700,000
Fixed expenses	500,000
Net operating income	$ 200,000
Average operating assets	$ 625,000

At the beginning of this year, the company has a $120,000 investment opportunity with the following cost and revenue characteristics:

Sales	$ 200,000
Contribution margin ratio	60	% of sales
Fixed expenses	$ 90,000

The companys minimum required rate of return is 15%.

Foundational 11-13 (Static)

13. If the company pursues the investment opportunity and otherwise performs the same as last year, what residual income will it earn this year?