The following information applies to the questions displayed below.] Westerville
ID: 2581294 • Letter: T
Question
The following information applies to the questions displayed below.] Westerville Company reported the following results from last year's operations Sales Varlable expenses $1,500,000 650,000 Contribution margin Flxed expenses 850,000 580,000 Net operating Income $ 270,000 Average operating assets $1,000,000 This year, the company has a $160,000 Investment opportunity with the following cost and revenue characterlstics $240,000 Sales Contribution margin ratio Flxed expenses 70 % of sales $144,000 The company's minimum required rate of return is 10%.Explanation / Answer
Operating income from new investment = [sales*CM ratio]-fixed cost
= [240000*.70]-144000
= 24000
Total Operating Income = 270000+24000= 294000
Total Invested asset = 1000000+160000= 1160000
9)ROI = Total operating income /total invested asset'
=294000/1160000
= .253 or 25.3%
10a)ROi last year = 270000/1000000 = .27 or 27%
NO,as ROI has decreased from last year (this year it is 25.3%]
10b)ROI from this project = 24000/160000=.15 or 15%
yes ,as it is more than minimum required rate of return (10%)
11)Residual income =operating income -[asset invested *minimum rate]
= 270000-[1000000*.10]
= 270000- 100000
= 170000
12)Residual income : 24000-[160000*.10]
= 24000- 16000
= 8000
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