[The following information applies to the questions displayed below.] Westervill
ID: 2580332 • Letter: #
Question
[The following information applies to the questions displayed below.]
Westerville Company reported the following results from last year’s operations:
This year, the company has a $160,000 investment opportunity with the following cost and revenue characteristics:
The company’s minimum required rate of return is 10%.
13. If the company pursues the investment opportunity and otherwise performs the same as last year, what residual income will it earn this year?
Residual Income
Explanation / Answer
Residual Income 178,000.00 Dear Student Thank you for using Chegg Please find below the answer and please give thumbs up Statementshowing Computations Paticulars Existing New Combined- Current Year Sales 1,500,000.00 240,000.00 1,740,000.00 Variable expenses (650,000.00) (72,000.00) (722,000.00) Contribution margin 850,000.00 168,000.00 1,018,000.00 Fixed costs (580,000.00) (144,000.00) (724,000.00) Income 270,000.00 24,000.00 294,000.00 Average Operating assets 1,000,000.00 160,000.00 1,160,000.00 Minimum Return in % 10% 10% 10% Minimum Return in $= Avg op assets*10% 100,000.00 16,000.00 116,000.00 Residual Income = Income - minimum return 170,000.00 8,000.00 178,000.00
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