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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 income of this year’s investment opportunity?

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

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ekkarill92 answered 2 years ago
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