What is last years residual income

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Reference no: EM132056950

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	$	240,000

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%.

1. What is last year's residual income?

2. What is the residual income of this year's investment opportunity?

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

Reference no: EM132056950

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