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

Question

Westerville Company reported the following results from last year’s operations: Sales $ 1,500,000 Variable expenses 690,000 Contribution margin 810,000 Fixed expenses 435,000 Net operating income $ 375,000 Average operating assets $ 1,250,000 This year, the company has a $350,000 investment opportunity with the following cost and revenue characteristics: Sales $ 420,000 Contribution margin ratio 70 % of sales Fixed expenses $ 252,000 The company’s minimum required rate of return is 10%. 3. What is last year’s return on investment (ROI)?

Explanation / Answer

Last year’s return on investment = Net operating income/Average operating assets = 375000/1250000= 30%

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