Question

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%. rev: 11_29_2016_QC_CS-70854, 03_04_2017_QC_CS-80997 1. value: 2.50 points Required information Required: 1. What is last year’s margin? References eBook & Resources WorksheetLearning Objective: 12-01 Compute return on investment (ROI) and show how changes in sales, expenses, and assets affect ROI. Difficulty: 2 MediumLearning Objective: 12-02 Compute residual income and understand its strengths and weaknesses. Check my work 2. value: 2.50 points Required information 2. What is last year’s turnover? (Round your answer to 1 decimal place.) References eBook & Resources WorksheetLearning Objective: 12-01 Compute return on investment (ROI) and show how changes in sales, expenses, and assets affect ROI. Difficulty: 2 MediumLearning Objective: 12-02 Compute residual income and understand its strengths and weaknesses. Check my work 3. value: 2.50 points Required information 3. What is last year’s return on investment (ROI)? References eBook & Resources WorksheetLearning Objective: 12-01 Compute return on investment (ROI) and show how changes in sales, expenses, and assets affect ROI. Difficulty: 2 MediumLearning Objective: 12-02 Compute residual income and understand its strengths and weaknesses. Check my work 4. value: 2.50 points Required information 4. What is the margin related to this year’s investment opportunity? References eBook & Resources WorksheetLearning Objective: 12-01 Compute return on investment (ROI) and show how changes in sales, expenses, and assets affect ROI. Difficulty: 2 MediumLearning Objective: 12-02 Compute residual income and understand its strengths and weaknesses. Check my work 5. value: 2.50 points Required information 5. What is the turnover related to this year’s investment opportunity? (Round your answer to 1 decimal place.) References eBook & Resources WorksheetLearning Objective: 12-01 Compute return on investment (ROI) and show how changes in sales, expenses, and assets affect ROI. Difficulty: 2 MediumLearning Objective: 12-02 Compute residual income and understand its strengths and weaknesses. Check my work 6. value: 2.50 points Required information 6. What is the ROI related to this year’s investment opportunity? (Do not round intermediate calculations. Round your answer to the nearest whole percent.) References eBook & Resources WorksheetLearning Objective: 12-01 Compute return on investment (ROI) and show how changes in sales, expenses, and assets affect ROI. Difficulty: 2 MediumLearning Objective: 12-02 Compute residual income and understand its strengths and weaknesses. Check my work 7. value: 2.50 points Required information 9. If the company pursues the investment opportunity and otherwise performs the same as last year, what ROI will it earn this year? (Do not round intermediate calculations. Round your percentage answer to 1 decimal place (i.e., 0.1234 should be entered as 12.3%)) References eBook & Resources WorksheetLearning Objective: 12-01 Compute return on investment (ROI) and show how changes in sales, expenses, and assets affect ROI. Difficulty: 2 MediumLearning Objective: 12-02 Compute residual income and understand its strengths and weaknesses. Check my work 8. value: 2.50 points Required information 10-a. If Westerville’s chief executive officer will earn a bonus only if her ROI from this year exceeds her ROI from last year, would she pursue the investment opportunity? Yes No 10-b. Would the owners of the company want her to pursue the investment opportunity? No Yes References eBook & Resources WorksheetLearning Objective: 12-01 Compute return on investment (ROI) and show how changes in sales, expenses, and assets affect ROI. Difficulty: 2 MediumLearning Objective: 12-02 Compute residual income and understand its strengths and weaknesses. Check my work 9. value: 2.50 points Required information 11. What is last year’s residual income? References eBook & Resources WorksheetLearning Objective: 12-01 Compute return on investment (ROI) and show how changes in sales, expenses, and assets affect ROI. Difficulty: 2 MediumLearning Objective: 12-02 Compute residual income and understand its strengths and weaknesses. Check my work 10. value: 2.50 points Required information 12. What is the residual income of this year’s investment opportunity? References eBook & Resources WorksheetLearning Objective: 12-01 Compute return on investment (ROI) and show how changes in sales, expenses, and assets affect ROI. Difficulty: 2 MediumLearning Objective: 12-02 Compute residual income and understand its strengths and weaknesses. Check my work 11. value: 2.50 points Required information 13. If the company pursues the investment opportunity and otherwise performs the same as last year, what residual income will it earn this year? References eBook & Resources WorksheetLearning Objective: 12-01 Compute return on investment (ROI) and show how changes in sales, expenses, and assets affect ROI. Difficulty: 2 MediumLearning Objective: 12-02 Compute residual income and understand its strengths and weaknesses. Check my work 12. value: 2.50 points Required information 14. If Westerville’s chief executive officer will earn a bonus only if her residual income from this year exceeds her residual income from last year, would she pursue the investment opportunity? No Yes References

Answer 1

Ques 1
NOI	360000
Sales	1800000
Margin	20.00%
Ques 2
Sales	1800000
Avg operating assets	1200000
Last years turnover	1.5
Ques 3
Margin	20.00%
Turnover	1.5
ROI	30.00%
Ques 4
NOI	72000
Sales	600000
Margin invenstment opportunity	12.00%
Ques 5
Sales	600000
Avg operating assets	400000
Last years turnover	1.50
Ques 6
Margin	12.00%
Turnover	1.50
ROI	18.00%
Ques 7
	Company	Opportunity	Total
Sales	1800000	600000	2400000
Variable expenses	740000	240000	980000
Contribution			1420000
fixed expenses	700000	288000	988000
Net operating income			432000
NOI	432000
Sales	2400000
Margin invenstment opportunity	18.0%
Ques 8
Sales	2400000
Avg operating assets	1600000
Last years turnover	1.50
Ques 9
Margin	18.0%
Turnover	1.50
ROI	27.0%
Ques 10
Due to declining ROI
Ques 11
NOI	360000
(Avg assets*MRRR)	120000
1200000*0.1
Residual income	240000
Ques 12
NOI	72000
(Avg assets*MRRR)	40000
400000*0.1
Residual income	32000
Ques 13
NOI	432000
(Avg assets*MRRR)	160000
1600000*0.1
Residual income	272000
Ques 14
Yes because of favourable increse in income