Question
Westerville Company reported the following results from last years operations: Sales $ 1,600,000 Variable expenses 700,000 Contribution margin 900,000 Fixed expenses 660,000 Net operating income
Westerville Company reported the following results from last years operations:
| Sales | $ | 1,600,000 |
| Variable expenses | 700,000 | |
| Contribution margin | 900,000 | |
| Fixed expenses | 660,000 | |
| Net operating income | $ | 240,000 |
| Average operating assets | $ | 1,000,000 |
| This year, the company has a $325,000 investment opportunity with the following cost and revenue characteristics: |
| Sales | $ | 520,000 | |
| Contribution margin ratio | 70 | % of sales | |
| Fixed expenses | $ | 312,000 | |
| The companys minimum required rate of return is 15%. What is last year's margin? What is last year's turnover? What is last years return on investment (ROI)? What is the margin related to this years investment opportunity? What is the turnover related to this years investment opportunity? What is the ROI related to this years investment opportunity? If the company pursues the investment opportunity and otherwise performs the same as last year, what margin will it earn this year? If the company pursues the investment opportunity and otherwise performs the same as last year, what turnover will it earn this year? If the company pursues the investment opportunity and otherwise performs the same as last year, what ROI will it earn this year? 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. Would the owners of the company want her to pursue the investment opportunity? Yes or No. What is last years residual income? What is the residual income of this years investment opportunity? If the company pursues the investment opportunity and otherwise performs the same as last year, what residual income will it earn this year? 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? Assume that the contribution margin ratio of the investment opportunity was 65% instead of 70%. 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. Would the owners of the company want her to pursue the investment opportunity? Yes or No. |
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Corporate Governance A Pragmatic Guide For Auditors Directors Investors And Accountants Internal Audit And IT Audit
Authors: Vasant Raval
1st Edition
0367862751, 978-0367862756
