Question

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 points

Required information

Required:

1.	What is last year’s margin? %

      

2.

value:
1.00 points

Required information

2.	What is last year’s turnover? (Round your answer to 1 decimal place.)

      

3.

value:
1.00 points

Required information

3.	What is last year’s return on investment (ROI)?%

       

4.

value:
1.00 points

Required information

4.	What is the margin related to this year’s investment opportunity?%

      

5.

value:
1.00 points

Required information

5.	What is the turnover related to this year’s investment opportunity? (Round your answer to 1 decimal place.)

      

6.

value:
1.00 points

Required information

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

      

7.

value:
1.00 points

Required information

11.	What is last year’s residual income?

      

8.

value:
1.00 points

Required information

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

      

9.

value:
1.00 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

Answer 1

Based on the information available in the question, we can calculate the following:-

1.) What is last year's Margin?

Margin = (Operating Income/Sales) * 100

=($180,000/$1,200,000) * 100

=15%

2.) What is last year's turnover?

= Sales/Average Operating Assets

= $1,200,000/600,000

Turnover = 2 times

3.) What is last year's return on investment(roi)?

Return on investment = Net Income/Average total assets * 100

=$180,000/600,000*100

=30%

Return on Investment = 30%

4.) What is the margin related to this year's investment opportunity?

Margin = (Operating Income/Sales) * 100

Operating Income

Sales - $220,000

Cost of Goods sold (40% of sales) - $88,000

Gross Profit - $132,000

Fixed expenses - $99,000

Operating Income - $33,000

Margin = ($33,000/$220,000) * 100

Margin = 15%

5.) What is the turnover related to this year's investment opportunity?

= Sales/Average Operating Assets

= $220,000/137,500

Turnover = 1.6 times

6.) What is the ROI related to this year's investment opportunity/

=Net Income/Average total assets * 100

=$33,000/$137,500 * 100

Return on Investment = 24%

Please note that we are required to answer atleast 4 questions as per the Answering guidelines which have been answered above. Kindly request you to post the remaining questions separately so that we can answer the other questions as well. All the best and please let me know if you have any questions via comments.