Westerville Company reported the following results from last year’s operations:

Question

Westerville Company reported the following results from last year’s operations:

This year, the company has a $200,000 investment opportunity with the following cost and revenue characteristics:

The company’s minimum required rate of return is 20%.

If the company pursues the investment opportunity and otherwise performs the same as last year, what margin will it earn this year? (Round your percentage answer to 1 decimal place (i.e .1234 should be entered as 12.3))

If the company pursues the investment opportunity and otherwise performs the same as last year, what ROI will it earn this year? (Round your percentage answer to 1 decimal place (i.e., 0.1234 should be considered as 12.3%.))

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

  Sales $ 1,750,000       Variable expenses 520,000       Contribution margin 1,230,000       Fixed expenses 880,000       Net operating income $ 350,000       Average operating assets $ 875,000    

Explanation / Answer

Q7 Statement showing computations Particulars Amount Sales           320,000.00 Contribution @60%           192,000.00 Fixed Expenses           128,000.00 Income             64,000.00 Statement showing computations Particulars Amount Sales =1,750,000 + 320,000       2,070,000.00 Margin = 350,000 + 64,000           414,000.00 Margin in % 20.00% Q9 Investment = 875,000 + 200,000       1,075,000.00 Return on investment=414,000/1075,000 38.51% Q13 Required Income = 1075,000*.20           215,000.00 Residual Income =414,000-215,000           199,000.00

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