L) S hrewsbury Inc. reported the following results from last year\'s operations:

Question

L) S hrewsbury Inc. reported the following results from last year's operations: Sales Variable expenses Contribution margin Fixed expenses Net operating income Average operating assets $ 7,200,000 5,400,000 1,800,000 1,296,000 504,000 $ 4,000,000 At the beginning of this year, the company has a $800,000 investment opportunity with the following characteristics 2,480,000 Sales Contribution margin ratio Fixed expenses 40% of sales $ 868,000 The company's minimum required rate of return is 14% Calculate the residual income for this year's investment opportunity when considered alone [10 points

Explanation / Answer

Residual income of the investment opportunity= 12000

a Investment     8,00,000 b Required return 14% c=a*b cost of capital     1,12,000

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