Sales $ 1,400,000 Variable expenses 720,000 Contribution margin 680,000 Fixed ex
ID: 2451682 • Letter: S
Question
Sales $ 1,400,000 Variable expenses 720,000 Contribution margin 680,000 Fixed expenses 470,000 Net operating income $ 210,000 Average operating assets $ 875,000 This year, the company has a $350,000 investment opportunity with the following cost and revenue characteristics: Sales $ 560,000 Contribution margin ratio 70 % of sales Fixed expenses $ 336,000 The company’s minimum required rate of return is 15%. 5.What is the turnover related to this year’s investment opportunity? 6.What is the ROI related to this year’s 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?
Explanation / Answer
SOLUTION :
Last Year
Investment opportunity
Current Year
SALES
1,400,000
560,000
1,960,000
VC
720,000
168,000
888,000
CONTRIBUTION
680,000
392,000
1,072,000
FIXED EXPENSE
470,000
336,000
806,000
NET OPERATING INCOME
210,000
56,000
266,000
Question
solution
turnover related to this year’s investment opportunity
560,000
ROI related to this year’s investment opportunity (56000/350000)
16%
If the company pursues the investment opportunity and otherwise performs the same as last year, what margin will it earn this year (1072000/1960000)
54.69%
If the company pursues the investment opportunity and otherwise performs the same as last year, what turnover will it earn this year? (1400000+560000)
1,960,000
If the company pursues the investment opportunity and otherwise performs the same as last year, what ROI will it earn this year? (266000/(875000+350000)
21.71%
Last Year
Investment opportunity
Current Year
SALES
1,400,000
560,000
1,960,000
VC
720,000
168,000
888,000
CONTRIBUTION
680,000
392,000
1,072,000
FIXED EXPENSE
470,000
336,000
806,000
NET OPERATING INCOME
210,000
56,000
266,000
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