Question
Westerville Company reported the following results from last years operations: Sales $ 1,500,000 Variable expenses 500,000 Contribution margin 1,000,000 Fixed expenses 700,000 Net operating income
Westerville Company reported the following results from last years operations: Sales $ 1,500,000 Variable expenses 500,000 Contribution margin 1,000,000 Fixed expenses 700,000 Net operating income $ 300,000 Average operating assets $ 1,000,000 At the beginning of this year, the company has a $200,000 investment opportunity with the following cost and revenue characteristics: Sales $ 300,000 Contribution margin ratio 60 % of sales Fixed expenses $ 132,000 The companys minimum required rate of return is 10%. 13. If the company pursues the investment opportunity and otherwise performs the same as last year, what residual income will it earn this year?
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