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

Question

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 8. If the company pursues the investment opportunity and otherwise performs the same as last year, what turnover will it earn this year? (Round your answer to 2 decimal places.)

If the company pursues the investment opportunity and otherwise performs the same as last year, what turnover will it earn this year? (Round your answer to 2 decimal places.)

9. 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., 0.1234 should be considered as 12.3%.))

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?

If the company pursues the investment opportunity and otherwise performs the same as last year, what turnover will it earn this year? (Round your answer to 2 decimal places.)

Explanation / Answer

8) Turnover ratio = net sales /Average total asset

                            =(1,500,000+ 580000)/(937500 +362500)

                              =2080000/ 1300000

                                = 1.6

9)net income = (contribution ratio * Sales) -fixed cost

                       = (.70*580000)-319000

                       = 87000

ROI = net income /Asset invested

            =( 300000+ 87000)/1,300,000

             = 387000/ 1300000

            = .2977 or 29.77%

11)For calculating Resdual income ,e need hurdle rate ..which is missing in this question

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