Reference no: EM132638736

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

Sales$1,400,000

Variable expenses 680,000

Contribution margin 720,000

Fixed expenses 440,000

Net operating income$ 280,000

Average operating assets$875,000

This year, the company has a $300,000 investment opportunity with the following cost and revenue characteristics:

Sales$480,000

Contribution margin ratio 80 % of sales

Fixed expenses$336,000

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

Required:

Question 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.)

Question 2: If the company pursues the investment opportunity and otherwise performs the same as last year, what ROI will it earn this year? (Round your percentage answer to 1 decimal place (i.e., 0.1234 should be considered as 12.3%.))

Question 3: What is last year's residual income?

Question 4: What is the residual income of this year's investment opportunity?

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