Westerville Company reported the following results from last years operations:

Sales	$ 1,400,000
Variable expenses	720,000
Contribution margin	680,000
Fixed expenses	470,000
Net operating income	$ 210,000
Average operating assets	$ 875,000

At the beginning of this year, the company has a $350,000 investment opportunity with the following cost and revenue characteristics:

Sales	$ 560,000
Contribution margin ratio	70	% of sales
Fixed expenses	$ 336,000

The companys minimum required rate of return is 15%.

Q1.

What is the turnover related to this years investment opportunity?

Q2.

What is the ROI related to this years investment opportunity?

Q3.

If the company pursues the investment opportunity and otherwise performs the same as last year, what margin will it earn this year?

Q4.

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 or No

b. Would the owners of the company want her to pursue the investment opportunity?

Yes or No

Q5.

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 or No

Q6.

a. Assume that the contribution margin ratio of the investment opportunity was 65% instead of 70%. 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 or No

b. Would the owners of the company want her to pursue the investment opportunity?

Yes or No