Question

In: Accounting

Westerville Company reported the following results from last year’s operations: Sales $ 1,400,000 Variable expenses 720,000...

Westerville Company reported the following results from last year’s operations:

Sales $ 1,400,000
Variable expenses 720,000
Contribution margin 680,000
Fixed expenses 470,000
Net operating income $ 210,000
Average operating assets $ 875,000

At the beginning of this year, the company has a $350,000 investment opportunity with the following cost and revenue characteristics:

Sales $ 560,000
Contribution margin ratio 70 % of sales
Fixed expenses $ 336,000

The company’s minimum required rate of return is 15%.

1. What is the ROI related to this year’s investment opportunity?

2. If the company pursues the investment opportunity and otherwise performs the same as last year, what margin will it earn this year?

3. If the company pursues the investment opportunity and otherwise performs the same as last year, what turnover will it earn this year?

4. If the company pursues the investment opportunity and otherwise performs the same as last year, what ROI will it earn this year?

5. What is last year’s residual income?

6. What is the residual income of this year’s investment opportunity?

Solutions

Expert Solution

1. What is the ROI related to this year’s investment opportunity?
Net operating income for investment opportunity 560000*70%-336000 $56,000
Margin $56,000 / $560,000 10%
Turnover $560,000 / $350,000 1.60 times
ROI Margin * Turnover 10% * 1.6
16%
2. If the company pursues the investment opportunity and otherwise performs the same as last year, what margin will it earn this year?
Total operating income for next year $210,000 + $56,000 $266,000
Total sales for next year $1,400,000 + $560,000 $1,960,000
Average operating assets for next year $875,000 + $350,000 $1,225,000
Margin $266,000 / $1,960,000 13.57%
3. If the company pursues the investment opportunity and otherwise performs the same as last year, what turnover will it earn this year?
Turnover $1,960,000 / $1,225,000 1.6 times
4. If the company pursues the investment opportunity and otherwise performs the same as last year, what ROI will it earn this year?
ROI 13.57% * 1.6 21.71%
5. What is last year’s residual income?
Residual Income Net Operating Income-Operating Assets*Required Rate of Return
$210000-875000*15%
$210000-$131250
$78,750
6. What is the residual income of this year’s investment opportunity?
Net Operating Income-Operating Assets*Required Rate of Return
(560000*70%-336000)-350000*15%
$56000-$52500
$3,500

Related Solutions

Westerville Company reported the following results from last year’s operations: Sales $ 1,400,000 Variable expenses 720,000...
Westerville Company reported the following results from last year’s operations: Sales $ 1,400,000 Variable expenses 720,000 Contribution margin 680,000 Fixed expenses 470,000 Net operating income $ 210,000 Average operating assets $ 875,000 At the beginning of this year, the company has a $350,000 investment opportunity with the following cost and revenue characteristics: Sales $ 560,000 Contribution margin ratio 70 % of sales Fixed expenses $ 336,000 The company’s minimum required rate of return is 15%. Required 1. What is the...
Westerville Company reported the following results from last year’s operations: Sales $ 1,400,000 Variable expenses 720,000...
Westerville Company reported the following results from last year’s operations: Sales $ 1,400,000 Variable expenses 720,000 Contribution margin 680,000 Fixed expenses 470,000 Net operating income $ 210,000 Average operating assets $ 875,000 At the beginning of this year, the company has a $350,000 investment opportunity with the following cost and revenue characteristics: Sales $ 560,000 Contribution margin ratio 70 % of sales Fixed expenses $ 336,000 The company’s minimum required rate of return is 15%. 1. What is the residual...
Westerville Company reported the following results from last year’s operations: Sales $ 1,400,000 Variable expenses 680,000...
Westerville Company reported the following results from last year’s operations: Sales $ 1,400,000 Variable expenses 680,000 Contribution margin 720,000 Fixed expenses 440,000 Net operating income $ 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: Sales $ 480,000 Contribution margin ratio 80 % of sales Fixed expenses $ 336,000 The company’s minimum required rate of return is 15%. 1.  If the company pursues the...
Westerville Company reported the following results from last year’s operations: Sales $ 1,400,000 Variable expenses 510,000...
Westerville Company reported the following results from last year’s operations: Sales $ 1,400,000 Variable expenses 510,000 Contribution margin 890,000 Fixed expenses 610,000 Net operating income $ 280,000 Average operating assets $ 875,000 At the beginning of this year, the company has a $175,000 investment opportunity with the following cost and revenue characteristics: Sales $ 280,000 Contribution margin ratio 50 % of sales Fixed expenses $ 98,000 The company’s minimum required rate of return is 15%. 1-1.  What is last year’s margin?...
Ch 11f Westerville Company reported the following results from last year’s operations: Sales $ 1,400,000 Variable...
Ch 11f Westerville Company reported the following results from last year’s operations: Sales $ 1,400,000 Variable expenses 680,000 Contribution margin 720,000 Fixed expenses 440,000 Net operating income $ 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: Sales $ 480,000 Contribution margin ratio 80 % of sales Fixed expenses $ 336,000 The company’s minimum required rate of return is 15%. 1. What is...
Westerville Company reported the following results from last year’s operations: Sales $ 1,500,000 Variable expenses 500,000...
Westerville Company reported the following results from last year’s operations: Sales $ 1,500,000 Variable expenses 500,000 Contribution margin 1,000,000 Fixed expenses 700,000 Net operating income $ 300,000 Average operating assets $ 1,000,000 At the beginning of this year, the company has a $200,000 investment opportunity with the following cost and revenue characteristics: Sales $ 300,000 Contribution margin ratio 60 % of sales Fixed expenses $ 132,000 The company’s minimum required rate of return is 10%. What is the residual income...
Westerville Company reported the following results from last year’s operations:   Sales $ 1,200,000       Variable expenses 420,000...
Westerville Company reported the following results from last year’s operations:   Sales $ 1,200,000       Variable expenses 420,000       Contribution margin 780,000       Fixed expenses 600,000       Net operating income $ 180,000       Average operating assets $ 600,000     This year, the company has a $137,500 investment opportunity with the following cost and revenue characteristics:   Sales $ 220,000   Contribution margin ratio 60 % of sales   Fixed expenses $ 99,000 The company’s minimum required rate of return is 20%. rev: 04_28_2016_QC_CS-49731 1. value: 1.00...
Westerville Company reported the following results from last year’s operations: Sales $ 2,300,000 Variable expenses 670,000...
Westerville Company reported the following results from last year’s operations: Sales $ 2,300,000 Variable expenses 670,000 Contribution margin 1,630,000 Fixed expenses 1,170,000 Net operating income $ 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 $ 460,000 Contribution margin ratio 50 % of sales Fixed expenses $ 161,000 The company’s minimum required rate of return is 15%. 6. What is the ROI...
Westerville Company reported the following results from last year’s operations: Sales $ 1,800,000 Variable expenses 740,000...
Westerville Company reported the following results from last year’s operations: Sales $ 1,800,000 Variable expenses 740,000 Contribution margin 1,060,000 Fixed expenses 700,000 Net operating income $ 360,000 Average operating assets $ 1,200,000 This year, the company has a $400,000 investment opportunity with the following cost and revenue characteristics: Sales $ 600,000 Contribution margin ratio 60 % of sales Fixed expenses $ 288,000 The company’s minimum required rate of return is 10%. 8. If the company pursues the investment opportunity and...
Westerville Company reported the following results from last year’s operations:   Sales $ 2,000,000       Variable expenses 640,000...
Westerville Company reported the following results from last year’s operations:   Sales $ 2,000,000       Variable expenses 640,000       Contribution margin 1,360,000       Fixed expenses 860,000       Net operating income $ 500,000       Average operating assets $ 1,250,000     This year, the company has a $250,000 investment opportunity with the following cost and revenue characteristics:   Sales $ 400,000   Contribution margin ratio 70 % of sales   Fixed expenses $ 220,000 The company’s minimum required rate of return is 10%. 6. What is the ROI...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT