If the company pursues the investment opportunity and

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Reference no: EM13572659

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


  Sales $ 1,200,000    
  Variable expenses
320,000    



  Contribution margin
880,000    
  Fixed expenses
640,000    



  Net operating income $ 228,000    



  Average operating assets $ 600,000    




This year the company has a $150,000 investment opportunity with the following cost and revenue characteristics:


  Sales $ 240,000
  Contribution margin ratio
50 % of sales
  Fixed expenses $ 84,000


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


Required:

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

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Reference no: EM13572659

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