Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Westerville Company reported the following results from last year's operations:
Sales
$ 1,000,000
Variable expenses
300,000
Contribution margin
700,000
Fixed expenses
500,000
Net operating income $ 200,000
Average operating assets $625,000
This year, the company has a $120,000 investment opportunity with the following cost and revenue characteristics:
Sales
Contribution margin ratio
Fixed expenses
$ 200,000
multiple choice 1
Yes
No
60
$ 90,000
The company's minimum required rate of return is 15%.
3. What is last year's return on investment (ROI)?
multiple choice 2
Yes
No
% of sales
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?
10-b. Would the owners of the company want her to pursue the investment opportunity?](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Ff324b481-b878-4b39-8e9a-8990284a9b84%2Fe4e69119-add5-44c5-9952-31311c8df9c0%2Feohl4mh_processed.jpeg&w=3840&q=75)
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[The following information applies the questions displayed below.]
Westerville Company reported the following results from last year's operations:
Sales
$ 1,000,000
Variable expenses
300,000
Contribution margin
700,000
Fixed expenses
500,000
Net operating income $ 200,000
Average operating assets $625,000
This year, the company has a $120,000 investment opportunity with the following cost and revenue characteristics:
Sales
Contribution margin ratio
Fixed expenses
$ 200,000
multiple choice 1
Yes
No
60
$ 90,000
The company's minimum required rate of return is 15%.
3. What is last year's return on investment (ROI)?
multiple choice 2
Yes
No
% of sales
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?
10-b. Would the owners of the company want her to pursue the investment opportunity?
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