Westerville Company reported the following results from last years operations:
(The following information applies to the questions displayed below.) Westerville Company reported the following results from last year's operations: Sales Variable expenses $1,500,000 730,000 Contribution margin Fixed expenses 770,000 470,000 Net operating income $ 300,000 Average operating assets $ 937,500 This year, the company has a $362,500 investment opportunity with the following cost and revenue characteristics: Sales Contribution margin ratio Fixed expenses $580,000 70% of sales $ 319,000 The company's minimum required rate of return is 10% Required: 1. What is last year's margin? Margin % 2. What is last year's turnover? (Round your answer to 1 decimal place.) Turnover 3. What is last year's return on investment (ROI)? ROI % 4. What is the margin related to this year's investment opportunity? Margin % 5. What is the turnover related to this year's investment opportunity? (Round your answer to 1 decimal place.) Turnover 6. What is the ROI related to this year's 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 % 8. If the company pursues the investment opportunity and otherwise performs the same as last year, what turnover will it earn this year? (Round your answer to 2 decimal places.) Turnover 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%.)) ROI % 10-a. If Westerville's 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 O No 10-b. Would the owners of the company want her to pursue the investment opportunity? O No O Yes 11. What is last year's residual income? Residual income References eBook & Resources Worksheet Learning Objective: 11-01 Compute return on investment (ROI) and show how changes in sales, expenses, and assets affect ROI. Difficulty: 2 Medium Learning Objective: 11-02 Compute residual income and understand its strengths and weaknesses. Check my work 12. value 0.66 points 12. What is the residual income of this year's investment opportunity? Residual income 13. If the company pursues the investment opportunity and otherwise performs the same as last year, what residual income will it earn this year? Residual income References eBook & Resources Worksheet Learning Objective: 11-01 Compute return on investment (ROI) and show how changes in sales, expenses, and assets affect ROI. Difficulty: 2 Medium Learning Objective: 11-02 Compute residual income and understand its strengths and weaknesses. Check my work 14. value: 0.66 points 14.If Westerville's 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 O No
