Question
Westerville Company reported the following results from last years operations: Sales $ 1,000,000 Variable expenses 300,000 Contribution margin 700,000 Fixed expenses 500,000 Net operating income
Westerville Company reported the following results from last years operations:
Sales | $ | 1,000,000 |
Variable expenses | 300,000 | |
Contribution margin | 700,000 | |
Fixed expenses | 500,000 | |
Net operating income | $ | 200,000 |
Average operating assets | $ | 625,000 |
At the beginning of this year, the company has a $120,000 investment opportunity with the following cost and revenue characteristics:
Sales | $ | 200,000 | |
Contribution margin ratio | 60 | % of sales | |
Fixed expenses | $ | 90,000 | |
The companys minimum required rate of return is 15%.
Questions
4. What is the margin related to this years investment opportunity?
7. If the company pursues the investment opportunity and otherwise performs the same as last year, what margin will it earn this year?
9. If the company pursues the investment opportunity and otherwise performs the same as last year, what ROI will it earn this year?
11. What is last years residual income?
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