Westerville Company reported the following results from last year’s operations: Sales $ 1,800,000 Variable expenses 740,000 Contribution margin 1,060,000 Fixed expenses 700,000 Net operating income $ 360,000 Average operating assets $ 1,200,000 At the beginning of this year, the company has a $400,000 investment opportunity with the following cost and revenue characteristics: Sales $ 600,000 Contribution margin ratio 60 % of sales Fixed expenses $ 288,000 The company’s minimum required rate of return is 10%. 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? multiple choice 1 Yes No 10-b. Would the owners of the company want her to pursue the investment opportunity? multiple choice 2 Yes No
Westerville Company reported the following results from last year’s operations: Sales $ 1,800,000 Variable expenses 740,000 Contribution margin 1,060,000 Fixed expenses 700,000 Net operating income $ 360,000 Average operating assets $ 1,200,000 At the beginning of this year, the company has a $400,000 investment opportunity with the following cost and revenue characteristics: Sales $ 600,000 Contribution margin ratio 60 % of sales Fixed expenses $ 288,000 The company’s minimum required rate of return is 10%. 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? multiple choice 1 Yes No 10-b. Would the owners of the company want her to pursue the investment opportunity? multiple choice 2 Yes No
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
Westerville Company reported the following results from last year’s operations:
| Sales | $ 1,800,000 |
|---|---|
| Variable expenses | 740,000 |
| Contribution margin | 1,060,000 |
| Fixed expenses | 700,000 |
| Net operating income | $ 360,000 |
| Average operating assets | $ 1,200,000 |
At the beginning of this year, the company has a $400,000 investment opportunity with the following cost and revenue characteristics:
| Sales | $ 600,000 | |
|---|---|---|
| Contribution margin ratio | 60 | % of sales |
| Fixed expenses | $ 288,000 |
The company’s minimum required
10-a. If Westerville’s chief executive officer will earn a bonus only if her
multiple choice 1
-
Yes
-
No
10-b. Would the owners of the company want her to pursue the investment opportunity?
multiple choice 2
-
Yes
-
No
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