Westerville Company reported the following results from last years operations:

Sales $ 1,500,000

Variable expenses 500,000

Contribution margin 1,000,000

Fixed expenses 700,000

Net operating income $ 300,000

Average operating assets $ 1,000,000

This year, the company has a $200,000 investment opportunity with the following cost and revenue characteristics:

Sales $ 300,000

Contribution margin ratio 60 % of sales

Fixed expenses $ 132,000

The companys minimum required rate of return is 10%.

QUESTIONS:

1. What is the margin related to this years investment opportunity?

2. What is the ROI related to this years investment opportunity?

3. If the company pursues the investment opportunity and otherwise performs the same as last year, what margin will it earn this year? (percentage)

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

5. If the company pursues the investment opportunity and otherwise performs the same as last year, what ROI will it earn this year? (percentage)

6. What is last years residual income?

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

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