Westerville Company reported the following results from last years operations: Sales $ 1,200,000 Variable expenses 320,000 Contribution margin 880,000 Fixed expenses 640,000 Net operating income $ 240,000 Average operating assets $ 600,000 This year, the company has a $150,000 investment opportunity with the following cost and revenue characteristics: Sales $ 240,000 Contribution margin ratio 50 % of sales Fixed expenses $ 84,000 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.)

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.)

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?

Yes

No

11. What is last years residual income?

12. What is the residual income of this years investment opportunity?

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

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?

No

Yes

15-a. Assume that the contribution margin ratio of the investment opportunity was 40% instead of 50%. 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 No 15-b. Would the owners of the company want her to pursue the investment opportunity?

Yes

No