Required information [The following information applies to the questions display

Question

Required information

[The following information applies to the questions displayed below.]

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

At the beginning of this year, the company has a $350,000 investment opportunity with the following cost and revenue characteristics:

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

5. What is last year’s residual income?What is the residual income of this year’s investment opportunity? If the company pursues the investment opportunity and otherwise performs the same as last year, what residual income will it earn this year?

Sales $ 1,400,000 Variable expenses 720,000 Contribution margin 680,000 Fixed expenses 470,000 Net operating income $ 210,000 Average operating assets $ 875,000

Explanation / Answer

Dear Student Thank you for using Chegg Please find below the answer Statementshowing Computations Paticulars Last year Invt Oppurtunity Total Current Year Sales      1,400,000.00                 560,000.00      1,960,000.00 Less Variable Expenses       (720,000.00)               (168,000.00)       (888,000.00) Contribution Margin         680,000.00                 392,000.00      1,072,000.00 Fixed cost       (470,000.00)               (336,000.00)       (806,000.00) Net operating income         210,000.00                    56,000.00         266,000.00 Average operating assets         875,000.00                 350,000.00      1,225,000.00 Required return in % 15% 15% 15% Required return in $ = Avg operating Assets *15%         131,250.00                    52,500.00         183,750.00 Residual Income = NOI - Required return            78,750.00                      3,500.00            82,250.00

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