Question

I really need a help please. Thank you.

Required information The Foundational 15 [LO10-1, LO10-2] [The following information applies to the questions displayed below.) Westerville Company reported the following results from last year's operations: Sales Variable expenses Contribution margin Fixed expenses Net operating income Average operating assets $1,000,000 300,000 700,000 500,000 $ 200,000 $ 625,000 At the beginning of this year, the company has a $120,000 investment opportunity with the following cost and revenue characteristics:

Answer 1

	Average operating assets	625,000
	minimum required rate of return	15%
	Residual Income for last year = Net operating Income - (Minimum required rate of reurn * Cost of operating assets)
	= 2,00,000 - (6,25,000 *15%)
	= 1,06,250
	New Investment project :
	Sales	200,000
	Contibution margin	60%
	Contibution margin (In amount)	120,000
	(-) Fixed Expenses	(90,000)
	Net Income	30,000
10 - 09	Total Income (30,000 + 2,00,000)	230,000
	Average operating assets	745,000
	(6,25,000 + 1,20,000)
	Return of Income	= 2,30,000 / 745,000 *100
		= 30.9 %
10 -10	Last year Return of Income	= 2,00,000 / 6,25,000 * 100
		= 32%
	Current ROI	= 30.9%
	Since, on accepting the new project the ROI for current year reduces, CEO will not accept the investment offer
	However, the owners of the company want her to pursue the investment oppurtunity, since it is more than minimum required rate of return
10 -11	Residual Income of previous year	106,250
10 -12	Residual Income of new investment opppurtunity = 30,000 - (1,20,000 *15%)
			=12,000