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In: Accounting

Robichau Inc. reported the following results from last year's operations: Sales 6,300,000 variable expenses 4,930,000 contribution...

Robichau Inc. reported the following results from last year's operations:

Sales 6,300,000
variable expenses 4,930,000
contribution margin 1,370,000
fixed expenses 803,000
Net operating income 567,000
Average Operating Assets 3,000,000

At the beginning of the year the company has 900,000 investment opportunity with the following characteristics

Sales 1,530,000

Contribution margin ratio 30% of sales

Fixed expenses 306,000

The company's minimum required rate of return is 20%

If the company purses the investment opportunity this year's combined residual income for the entire company would be closest too:

a) 780,000

b) (56,100)

c) (60,000)

d) 720,000

Solutions

Expert Solution

Answer- If the company purses the investment opportunity this year's combined residual income for the entire company would be closest too = $(60000).

Explanation- Combined residual income for the entire company = $(33000)+ ($27000)

= $(60000)

Residual income for last year =Net Operating income –(Average operating assets*Required rate of return)

= $567000 – ($3000000*20%)

= $567000 - $600000

= $(33000)

Residual income for this year =Net Operating income –(Average operating assets*Required rate of return)

= $153000 – ($900000*20%)

= $153000 - $180000

= $(27000)

Explanation- Net operating income (Sales* Contribution margin ratio) - Fixed costs

= ($1530000*30%) - $306000

= $459000 - $306000

= $153000

ekkarill92 answered 2 years ago
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