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%.

1. What is last years margin?

Margin %

2. What is last years turnover? (Round your answer to 1 decimal place.) 3. What is last years return on investment (ROI)? 4. What is the margin related to this years investment opportunity? Margin % 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