[The following information applies to the questions displayed below.] Westervill

Question

[The following information applies to the questions displayed below.] Westerville Company reported the following results from last year's operations: $1,600,000 700,000 Sales Variable expenses Contribution margin 900,000 660,000 Fixed expenses Net operating income Average operating assets $ 240,000 $1,000,000 This year, the company has a $325,000 investment opportunity with the following cost and revenue characteristics: $520,000 Sales Contribution margin ratio Fixed expenses 70 % of sales $312,000 The company's minimum required rate of return is 15%.

Explanation / Answer

$ Existing net operating income 240000 Additional net operating income from new investment: Sales 520000 Contribution margin (520000*70%) 364000 (-) Fixed expenses 312000 Additional net income 52000 Total operating income (240000+52000) 292000 Total average operating assets (1000000+325000) 1325000 Margin of current year (292000/1325000) 22.04%

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