What residual income will it earn

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Problem -

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

Sales

$1,500,000

Variable expenses

730,000

Contribution margin

770,000

Fixed expenses

470,000

Net operating income

$300,000

Average operating assets

$937,500

This year, the company has a $362,500 investment opportunity with the following cost and revenue characteristics:

  Sales

$580,000

  Contribution margin ratio

70% of sales

  Fixed expenses

$319,000

The company's minimum required rate of return is 10%.

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

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 the residual income of this year's investment opportunity?

4) 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: EM131572468

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