Westerville Company reported the following results from last years operations:

1. What is last years residual income?

2. What is the residual income of this years investment opportunity?

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

4. 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?

5-a. Assume that the contribution margin ratio of the investment opportunity was 50% instead of 60%. 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?

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

Sales Variable expenses Contribution margin Fixed expenses Net operating income $ 1,800,000 740,000 1,060,000 700,000 $ 360,000 $ 1,200,000 Average operating assets At the beginning of this year, the company has a $400,000 investment opportunity with the following cost and revenue characteristics: Sales Contribution margin ratio Fixed expenses $ 600,000 60% of sales $ 288,000 The company's minimum required rate of return is 10%