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 $237,500 investment opportunity with the following cost and revenue characteristics:

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

5. What is the turnover related to this year's investment opportunity?

6. What is the ROI related to this year's investment opportunity?

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

8. If the company pursues the investment opportnity and otherwise performs the same as last year, what turnover will it earn this year?

9. IF the compmany pursues the investment opportunity and otherwise performs the same as last year, what ROI will it earn this year?

11. What is last year's residual income?

12. What is the residual income of this year's investment opportunity?

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

  Sales $ 1,900,000       Variable expenses 550,000       Contribution margin 1,350,000       Fixed expenses 875,000       Net operating income $ 475,000       Average operating assets $ 1,187,500    

Explanation / Answer

5. What is the turnover related to this year's investment opportunity? The Answer is $ 380,000

6. What is the ROI related to this year's investment opportunity? The Answer is 24% ( 57000 / 237500)

7. If the company pursues the investment opportunity and otherwise performs the same as last year, what margin will it earn this year? The Answer is $ 532,000   (475000 + 57000)

8. If the company pursues the investment opportnity and otherwise performs the same as last year, what turnover will it earn this year? The Answer is $ 2,280,000 (1,900,000 + 380,000)

9. IF the compmany pursues the investment opportunity and otherwise performs the same as last year, what ROI will it earn this year? The Answer is  37.33% (532000 / 1425000)

11. What is last year's residual income? The Answr is $ 356,250 (475000 - 10% of 1187500)

12. What is the residual income of this year's investment opportunity?

     The Answr is $ 33,250 (57000 - 10% of 237500)

13. If the company pursues the investment opportunity and otherwise performs the same as last year, what residual income will it earn this year? The Answer is $ 389,500   (356250 + 33250)

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