Question
Westerville Company reported the following results from last years operations: Sales $ 1,300,000 Variable expenses 440,000 Contribution margin 860,000 Fixed expenses 600,000 Net operating income
Westerville Company reported the following results from last years operations: Sales $ 1,300,000 Variable expenses 440,000 Contribution margin 860,000 Fixed expenses 600,000 Net operating income $ 260,000 Average operating assets $ 812,500 This year, the company has a $162,500 investment opportunity with the following cost and revenue characteristics: Sales $ 260,000 Contribution margin ratio 80 % of sales Fixed expenses $ 182,000 The companys minimum required rate of return is 15%. 5. What is the turnover related to this years investment opportunity? (Round your answer to 1 decimal place.) 6. What is the ROI related to this years investment opportunity? ROI % 7. If the company pursues the investment opportunity and otherwise performs the same as last year, what margin will it earn this year? (Round your percentage answer to 1 decimal place (i.e .1234 should be entered as 12.3)) 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 .1234 should be entered as 12.3)) 10-a. 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 No 10-b. Would the owners of the company want her to pursue the investment opportunity? No Yes 14. 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 No15-a. Assume that the contribution margin ratio of the investment opportunity was 75% instead of 80%. 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? No Yes 15-b. Would the owners of the company want her to pursue the investment opportunity? No Yes
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