[The following information applies to the questions displayed below.j Westerile

Question

[The following information applies to the questions displayed below.j Westerile Company reportes e folowing resuts rom astyers operatons $2,200,000 660,000 Sales Variable expenses 1,540,000 1,100,000 Contribution margin Fixed expenses Net operating income Average operating assets $440,000 $ 1,375,000 This year, the company has a $275,000 investment opportunity with the following cost and revenue characteristics: Sales Contribution margin ratio Fixed expenses $440,000 60% of sales The company's minimum required rate of return is 15%.

Explanation / Answer

Hi Student !

6) Return on Investment would be Calculated as follows:-

Net Operating Income/Total Investment*100

Net Operating Income:-
Turnover*Contribution Margin- Fixed Cost

$440000*60%- 220000= $44000

Net Investment for this year= $275000

ROI for This Year= 44000/275000*100= 16%

7) Margin Which Co. Will earn:-

Total Margin Amount/Total Turnover*100

This year Investment Margin Amount:- 440000*60%= $264000

Existing Margin Amount= $1540000

Total Margin= 264000+1540000= $1804000

Total Turnover= 440000+2200000= $2640000

Margin= 1804000/2640000*100= 68.3%

8) Total Turnover already calculated above= $2640000.00

9) Total ROI= Total Net Operating Profit/Total Investment *100

Total Profit:-

Existing:- $440000
This year investment:- $44000
Total:- $484000

Total Investment:-

Existing:- $1375000
This Year:- $275000
Total:- $1650000

ROI:- 484000/1650000*100= 29.3%

10)

A) Existing ROI:- 440000/1375000*100= 32%

Existing ROI is more than ROI of both investments so CEO will not peruse the investment.

NO

B) NO

Because Existing ROI is more than ROI of both investments.

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