Westerville Company reported the following results from last year’s operations:
ID: 2589068 • Letter: W
Question
Westerville Company reported the following results from last year’s operations:
This year, the company has a $400,000 investment opportunity with the following cost and revenue characteristics:
The company’s minimum required rate of return is 10%.
1. What is the ROI related to this year’s investment opportunity? ROI _____%
2. If the company pursues the investment opportunity and otherwise performs the same as last year, what margin will it earn this year? (Round your percentage answer to 1 decimal place (i.e .1234 should be entered as 12.3)) _________%
3. If the company pursues the investment opportunity and otherwise performs the same as last year, what turnover will it earn this year? (Round your answer to 2 decimal places.) Turnover ________
4. If the company pursues the investment opportunity and otherwise performs the same as last year, what ROI will it earn this year? (Round your percentage answer to 1 decimal place (i.e .1234 should be entered as 12.3)) ROI _____%
5. What is last year’s residual income? Residual income _________
6. What is the residual income of this year’s investment opportunity? Residual income ________
7. If the company pursues the investment opportunity and otherwise performs the same as last year, what residual income will it earn this year? Residual income ___________
THANK YOU SO VERY MUCH FOR YOUR SUPPORT!!!
Westerville Company reported the following results from last year’s operations:
Explanation / Answer
1)Net Income from this year opportunity = [Sales *CM ratio]-fixed cost
= [600000*.60]-288000
= 72000
ROI =net income /Investment
= 72000/400000
= .18 or 18%
2)Total net operating income :72000+360000= 432000
Total sales :1800000+600000=2400000
Margin = net operating income /sales
=432000/2400000
= .18 or 18%
3)Turnover =Sales /Average asset invested
= 2,400,000 /1,600,000
= 1.5
**average asset = 1200000+400000=1600000
4)ROI : Margin *turnover
= 18*1.5
= 27%
5) residual imcome =Net operating income -[aveage asset invested*Minimum rate]
= 360000- [1,200,000*.10]
= 360000- 120000
= 240000
6)Residual income of this year opportunity = 72000-[400000*10%]
= 72000-40000
= 32000
7)Residual income : 432000-[1600000*.10]
= 432000-160000
= 272000
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