Question
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
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%.
Required :
- If the company pursues the investment opportunity and otherwise performs the same as last year, what margin will it earn this year?
- If the company pursues the investment opportunity and otherwise performs the same as last year, what turnover will it earn this year?
- If the company pursues the investment opportunity and otherwise performs the same as last year, what ROI will it earn this year?
- What is last years residual income?
- What is the residual income of this years investment opportunity?
- 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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