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%.
1-What is last years margin?
2-What is last years turnover?
3-What is last years return on investment (ROI)?
4-What is the margin related to this years investment opportunity?
5-What is the turnover related to this years investment opportunity?
6-What is the ROI related to this years investment opportunity?
7-If the company pursues the investment opportunity and otherwise performs the same as last year, what margin will it earn this year?
8-If the company pursues the investment opportunity and otherwise performs the same as last year, what turnover will it earn this year?
9- If the company pursues the investment opportunity and otherwise performs the same as last year, what ROI will it earn this year?
10-What is last years residual income?
11-What is the residual income of this years investment opportunity?
12-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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