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

Sales	$ 1,600,000
Variable expenses	700,000
Contribution margin	900,000
Fixed expenses	660,000
Net operating income	$ 240,000
Average operating assets	$ 1,000,000

At the beginning of this year, the company has a $325,000 investment opportunity with the following cost and revenue characteristics:

Sales	$ 520,000
Contribution margin ratio	70	% of sales
Fixed expenses	$ 312,000

The company’s minimum required rate of return is 15%.

1- 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.)

2- If the company pursues the investment opportunity and otherwise performs the same as last year, what ROI will it earn this year?

3- What is last year’s residual income?

4- What is the residual income of this year’s investment opportunity?

5- If the company pursues the investment opportunity and otherwise performs the same as last year, what residual income will it earn this year?

Answer rating: 100% (QA)

Residual Income A B C A Net operating Income B Minimum needed return on assets C Average operating a... View the full answer