Westerville Company reported the following results from last year’s operations: Sales $ 1,500,000 Variable expenses 500,000 Contribution margin 1,000,000 Fixed expenses 700,000 Net operating income $ 300,000 Average operating assets $ 1,000,000 At the beginning of this year, the company has a $200,000 investment opportunity with the following cost and revenue characteristics: Sales $ 300,000 Contribution margin ratio 60 % of sales Fixed expenses $ 132,000 The company’s minimum required rate of return is 10%. What is the residual income of this year’s investment opportunity? What is last year’s residual income?
Westerville Company reported the following results from last year’s operations: Sales $ 1,500,000 Variable expenses 500,000 Contribution margin 1,000,000 Fixed expenses 700,000 Net operating income $ 300,000 Average operating assets $ 1,000,000 At the beginning of this year, the company has a $200,000 investment opportunity with the following cost and revenue characteristics: Sales $ 300,000 Contribution margin ratio 60 % of sales Fixed expenses $ 132,000 The company’s minimum required rate of return is 10%. What is the residual income of this year’s investment opportunity? What is last year’s residual income?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Westerville Company reported the following results from last year’s operations:
| Sales | $ 1,500,000 |
|---|---|
| Variable expenses | 500,000 |
| Contribution margin | 1,000,000 |
| Fixed expenses | 700,000 |
| Net operating income | $ 300,000 |
| Average operating assets | $ 1,000,000 |
At the beginning of this year, the company has a $200,000 investment opportunity with the following cost and revenue characteristics:
| Sales | $ 300,000 | |
|---|---|---|
| Contribution margin ratio | 60 | % of sales |
| Fixed expenses | $ 132,000 |
The company’s minimum required
What is the residual income of this year’s investment opportunity?
What is last year’s residual income?
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