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

Question

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

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

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

1b. What is the ROI related to this year’s investment opportunity?

1c. If the company pursues the investment opportunity and otherwise performs the same as last year, what margin will it earn this year? (Round your percentage answer to 1 decimal place (i.e .1234 should be entered as 12.3)

1d. 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 .1234 should be entered as 12.3))

1e. If the company pursues the investment opportunity and otherwise performs the same as last year, what residual income will it earn this year?

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

Explanation / Answer

Dear Student Thank you for using Chegg Please find below the answer Statementshowing Computations Paticulars Amount 1a) Sales          240,000.00 Variable costs at 50%        (120,000.00) Contribution          120,000.00 Less Fixed costs          (84,000.00) Income or Margin            36,000.00 1b) Investment Oppurtunity          150,000.00 Income or Margin            36,000.00 ROI =36,000/150,000 24.00% 1c) Last Year New Investment Total Investment Sales      1,200,000.00           240,000.00           1,440,000.00 Variable costs at 50%        (320,000.00)         (120,000.00)             (440,000.00) Contribution          880,000.00           120,000.00           1,000,000.00 Less Fixed costs        (640,000.00)           (84,000.00)             (724,000.00) Income or Margin          240,000.00              36,000.00               276,000.00 1d) Income or Margin          240,000.00              36,000.00               276,000.00 Investment Oppurtunity          600,000.00           150,000.00               750,000.00 ROI 40.00% 24.00% 36.80% 1e) minimum required rate of return 15% 15% 15% minimum required rate of return in $            90,000.00              22,500.00               112,500.00 Residual Income = Income - min Inc          150,000.00              13,500.00               163,500.00

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