Westerville Company reported the following results from last years operations:

Sales	$	1,200,000
Variable expenses		420,000
Contribution margin		780,000
Fixed expenses		600,000
Net operating income	$	180,000
Average operating assets	$	600,000

At the beginning of this year, the company has a $137,500 investment opportunity with the following cost and revenue characteristics:

Sales	$	220,000
Contribution margin ratio		60	% of sales
Fixed expenses	$	99,000

The companys minimum required rate of return is 20%.

Foundational 11-13

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

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

Westerville Company reported the following results from last year's operations: Sales Variable expenses Contribution margin Fixed expenses Net operating income Average operating assets $ 1,200,000 420,000 780,000 600,000 $ 180,000 $ 600,000 At the beginning of this year, the company has a $137,500 investment opportunity with the following cost and revenue characteristics: Sales Contribution margin ratio Fixed expenses $ 220,000 60 % of sales $ 99,000 The company's minimum required rate of return is 20%. Foundational 11-13 13. If the company pursues the investment opportunity and otherwise performs the same as last year, what residual income will it earn this year? Residual income $ 105,500