Westerville Company reported the following results from last year's operations: Variable expenses Contribution margn Fixed expenses Net operating income $1,000,000 3 00,000 700,000 500,000 $ 200,000 625 000 rage operating assets At the beginning of this year, the company has a $120,000 investment opportunity with the following cost and revenue characteristics: Page 527 Sales Contribution margin ratio Foxed expenses $200,000 60% of sales $90,000 The company's minimum required rate of return is 15%. Last year's margin is: 2 Last year's turnover is: 3 Last year's return on investment (ROI) is: 4 The margin for this year's investment opportunity is: 5 The turnover for this year's investment opportunity is: 6 The ROI for this year's investment opportunity is: 7, 8, and 9. If the company pursues the investment opportunity, this year's margin, turnover, and ROI would be: 9 10 10 The CEO would not pursue the investment opportunity because it lowers her ROI from 32% to 30.9%. The owners of the company would want the CEO to pursue the investment opportunity because its ROI of 25% exceeds the company's minimum reaured rate of return of 15%. 11 Last year's residual income is Average operating assets Net operating income Minimum required return: 15% x 200,000 Residual income 12 The residual income for this year's investment opportunity i Average operating assets Net operating income Minimum required return: 15%$120,000 18,000 Residual income 13 If the company pursues the investment opportunity, this year's residual income will be 13 If the company pursues the investment opportunity, this year's residual income will be: Average operating assets Net operating income Minimum required return:15%x $745,000 Residual income 14 The CEO would pursue the investment opportunity because... 15 The CEO and the company would not want to pursue this investment opportunity because Average operating assets Net operating income ($200,000 x 50%-$90,000) Minimum required 15% Residual income $10,000 $ (8,000)