Westerville Company reported the following results from last year’s operations:
ID: 2462193 • Letter: W
Question
Westerville Company reported the following results from last year’s operations: Sales $ 2,000,000 Variable expenses 640,000 Contribution margin 1,360,000 Fixed expenses 860,000 Net operating income $ 500,000 Average operating assets $ 1,250,000 This year, the company has a $250,000 investment opportunity with the following cost and revenue characteristics: Sales $ 400,000 Contribution margin ratio 70 % of sales Fixed expenses $ 220,000 The company’s minimum required rate of return is 10%.
2.What is last year’s turnover? (Round your answer to 1 decimal place.)
What is the residual income of this year’s investment opportunity?
1. What is last year’s margin?What is last year’s return on investment (ROI)?
What is the margin related to this year’s investment opportunity?
What is the turnover related to this year’s investment opportunity? (Round your answer to 1 decimal place.)
What is the ROI related to this year’s investment opportunity?
What is last year’s residual income?
What is the residual income of this year’s investment opportunity?
Explanation / Answer
Last Year New Investment Sales 2,000,000 400,000 2,400,000 Variable expense 640,000 Contribution margin 1,360,000 280,000 1,640,000 Fixed Expense 860,000 220,000 1,080,000 Net Operatin Asset 500,000 60,000 560,000 Average Operating Asset 1,250,000 250,000 1,500,000 Minimum required rate of return 10% 40,000 240,000 Margin for last year $ 560,000.00 ROI: (560000/1500000)*100 37% Margin related to new investment $ 60,000.00 Turnover related to new investment $ 400,000.00 ROI related to new investment (60000/250000)*100 24% Residual Income (560000-240000) $ 320,000.00 Residual Income related to new investment $ 20,000.00
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