Required information The following information applies to the questions displaye

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 $ 2,300,000 670,000 1,630,000 1,170,000 $ 460,000 Average operating assets $ 1,437, 500 At the beginning of this year, the company has a $287,500 investment opportunity with the following cost and revenue characteristics Sales Contribution margin ratio Fixed expenses $ 460,000 50% of sales 161,000 l ne companys minimum required rate o return is 15%. 7. If the company pursues the investment opportunity and otherwise performs the same as last year, what margin will it earn this year? (Round your percentage answer to 1 decimal place (i.e .1234 should be entered as 12.3)) Answer is complete but not entirely correct. Margin 10.0 x %

Explanation / Answer

Calculate following under investment opportunity and otherwise performs same as last year :

8. Margin = net income*100/sales = 529000*100/2760000 = 19.2%

9. Turnover = Sales/average total asset= 2760000/1725000 = 1.60

10. ROI = Net income*100/Average operating assets = 529000*100/1725000 = 30.7%

11. Residual income = Actual operating income-minimum operating income

= 529000-(1725000*15%)

Residual income = 270250

Sales (2300000+460000) 2760000 Net income (460000+69000) 529000 Average operating assets (1437500+287500) 1725000

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