]

The president feels very strongly that Mountain Sports should expand operations to a second location. She has even found a prime location in Canmore, Alberta, One of the great things about Canmore is its proximity to the mountains, and its only about 10 minutes away from this beautiful, vibrant and internationally known Banff tourist town. Research indicates that the Canmore market is well suited to both cross-country skis and bikes that competition is fairly limited. The investment in assets (cash, inventory, equipment) required for the new $ 205,000 location is Minimum required return on investments 13% Actual 2019 return on investment of the original location 20% Management has provided the following income statement to the bank manager the expected net income in the next year. Static Budget Amount Sales in Units 4,136 Sales 517,000 100% Less: Variable Costs: Cost of Goods Sold 218,000 42% Sales Commissions 72,380 14% Total Variable Costs 290,380 56% Contribution Margin 226,620 44% Less: Fixed Costs: Advertising 21,000 Property Taxes 10,000 Rent 44,000 Salaries & Wages 108,000 Total Fixed Costs 183,000 Net Operating Income 43,620 Part A: (4 marks) Calculate the following performance measurements for the proposed Canmore expansion: Margin (see Chapter 11 notes) Turnover (use investment in assets in equation) Return on Investment Residual Income a. If management is evaluated based on ROI, will the project be accepted (expansion into Canmore)? Why or why not? b. If management is evaluated based on residual income, will the expansion into Canmore be accepted? Why or why not