1) Lassiter Inc. reported the following results from last year\'s operations: Sa

ID: 2537538 • Letter: 1

Question

1) Lassiter Inc. reported the following results from last year's operations:

Sales $ 7,200,000

Variable expenses 5,400,000

Contribution margin 1,800,000

Fixed expenses 1,296,000

Net operating income $ 504,000

Average operating assets $ 4,000,000

At the beginning of this year, the company has a $800,000 investment opportunity with the following characteristics:

Sales $ 2,480,000

Contribution margin ratio 40 % of sales

Fixed expenses $ 868,000

The company's minimum required rate of return is 14%.

Last year's residual income was closest to:

A) $504,000

B) ($56,000)

C) $460,000

D) ($475,200)

Residual income = Actual net operating income-(minimum operating income)

= 504000-(4000000*14%)

Residual income = (56000)

so answer is b) ($56000)

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