MHE Reader omework Required informatiorn The foWowing information applies to the

Question

MHE Reader omework Required informatiorn The foWowing information applies to the questions displayed below Westervillie Company reported the following results from last year's operations Sales Variable expenses Contribution margin Fixed expenses $1,580,600 500,000 1,800,800 700,800 $ 38e,808 Net operating incone Average operating assets $1,800,000 At the beginning of this year, the company has a $200,000 investment opportunity with the following cost and revenue characteristics 5389,000 Sales Contribution margin 60% of sales Fixed expenses $132,000 The company's minimum required rate of return is 10% 13 If the company pursues the investment opportunity and otherwise performs the same as last year, what this year? residual income will t parm O.

Explanation / Answer

Residual Income is calculated by deducting min. required rate of return on avg assets from net operating income.

Resiual Income = ($300000+$48000)-10% of ($1000000+$200000) = $ 228000

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