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 Sales Variable expenses Contribution margin Fixed expenses Net operating income $ 1,400,000 680,000 720,000 440,000 $ 280,000 Average operating assets 875, 000 At the beginning of this year, the company has a $300,000 investment opportunity with the following cost and revenue characteristics: $ 480,000 Sales Contribution margin ratio Fixed expenses 80 % of sales $ 336,000 The company's minimum required rate of return is 15%. 9. If the company pursues the investment opportunity and otherwise performs the same as last year, what ROl will it earn this year? (Round your percentage answer to 1 decimal place (i.e., 0.1234 should be considered as 12.3%.)) ROI 45,0 %

Explanation / Answer

Calculate ROI of this year :

Operating income under investment opportunity = (480000*80%-336000) = 48000

Total operating income after investment = (48000+280000) = 328000

Total operating assets = (875000+300000)= 1175000

ROI = Operating income*100/Operating assets

= 328000*100/1175000

ROI = 27.9%

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