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 $150,000 investment opportunity with the following cost and revenue characteristics:

The company’s minimum required rate of return is 15%.

What is the residual income of this year’s 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?

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

Explanation / Answer

12) Residual income net operating income - (average investment *min rate of return) 36,000 - (150,000*15%) 13500 answer this years net operating income contribution - fixed expense 240,000*50% -84000 36000 13) Residual income net operating income - (average investment *min rate of return) 240,000 - (150,000*15%) 217500 answer

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