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Westerville Company reported the following results from last years operations: Sales $ 1,500,000 Variable expenses 690,000 Contribution margin 810,000 Fixed expenses 435,000 Net operating income

Westerville Company reported the following results from last years operations:

Sales $ 1,500,000
Variable expenses 690,000
Contribution margin 810,000
Fixed expenses 435,000
Net operating income $ 375,000
Average operating assets $ 1,250,000

At the beginning of this year, the company has a $350,000 investment opportunity with the following cost and revenue characteristics:

Sales $ 420,000
Contribution margin ratio 70 % of sales
Fixed expenses $ 252,000

The companys minimum required rate of return is 10%.

Required:

1. What is last years margin?

9. If the company pursues the investment opportunity and otherwise performs the same as last year, what ROI will it earn this year? (Round your percentage answer to 1 decimal place (i.e., 0.1234 should be considered as 12.3%.))

15-a. 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

No

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

Yes

No

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