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Question: I understand how to do some of these, but notall….
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I understand how to do some of these, but not all. I haveattached the answers to what I got but am confused at questionsregarding the investment opportunities.
Westerville Company reported the following results from last year2013 operations:
Sales $ 1,000,000
Variable expenses 300,000
————————————–
Contribution margin 700,000
Fixed expenses 500,000
—————————————
Net operating income $ 200,000
—————————————
Average operating assets $ 625,000
This year the company has a $120,000 investment opportunity withthe following cost and revenue characteristics:
Sales $ 200,000
Contribution margin ratio 60 % of sales
Fixed expenses $ 90,000
If the company pursues the investment opportunity and otherwiseperforms the same as last year, what ROI will it earn this year?(Round your percentage answer to 1 decimal place (i.e .1234should be entered as 12.3))
10-a.
If Westerville’s chief executive officer will earn a bonus onlyif her ROI from this year exceeds her ROI from last year, would shepursue the investment opportunity?
Yes
No
10-b.
Would the owners of the company want her to pursue theinvestment opportunity?
Yes
No
2-
What is last year’sresidual income?
3.
If the company pursues the investment opportunity and otherwiseperforms the same as last year, what residual income will it earnthis year?
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