Reference no: EM131092887
Westerville Company reported the following results from last year % 2013 operations:
Sales $ 1,000,000
Variable expenses 300,000
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Contribution margin 700,000
Fixed expenses 500,000
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Net operating income $ 200,000
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Average operating assets $ 625,000
This year the company has a $120,000 investment opportunity with the following cost and revenue characteristics:
Sales $ 200,000
Contribution margin ratio 60 % of sales
Fixed expenses $ 90,000
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The company%u2019s minimum required rate of return is 15%.
1. What is last year's margin?
2. What is last year's turnover?
3. What is lat year's ROI?
Can you provide formulas or explainations - I'd like to figure this on my own?
4. What is the margin related to this year's investment opportunity? How did you get this answer?
5. What is the turnover related to this year's investment opportunity? How did you get this answer?
6. What is the ROI related to this year's investment opportunity? How did you get this answer?
7. If the company pursues the investment opportunity and otherwise performs thesame as last year, what margin wil it earn this year?
8. If the company pursues the investment opportunity and otherwise performs the same as last year, what turnover will it earn this year
9. If the company pursues the investment opportunity and otherwise performs the same as last year,what ROI will it yearn this year?
10. If westervilles CEOwill earn a bonus only if her ROI from this year exceeds her ROI from last year, would she pursue the investment opportunity?Would the owners of the company wanther to pursue the investment?
11. What is last year's residual income?
12. What is the residula income of this year's investment opportunity?
13. If the company pursues the investment opportunity and otherwise performs the same as last year, what resigual income will it earn this year?
14. if Westervilles CEO will earn bonus only if her residual income from this year exceeds her residual income fromlast year, would se purse the investment opportunity?
15. Assume that the contribution margin ratio of the investment opportunity was 50% instead of 60%. if westervilles CEO will only earn a bonus if her resigual income fromthis year exceeds her residual income from last year, would she pursue the investment opportunity? Would the owners of the company want her to pursue the investment opportunity?
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