[The following information applies to the questions displayed below.j Westerile
ID: 2467515 • Letter: #
Question
[The following information applies to the questions displayed below.j Westerile Company reportes e folowing resuts rom astyers operatons $2,200,000 660,000 Sales Variable expenses 1,540,000 1,100,000 Contribution margin Fixed expenses Net operating income Average operating assets $440,000 $ 1,375,000 This year, the company has a $275,000 investment opportunity with the following cost and revenue characteristics: Sales Contribution margin ratio Fixed expenses $440,000 60% of sales The company's minimum required rate of return is 15%.Explanation / Answer
Hi Student !
6) Return on Investment would be Calculated as follows:-
Net Operating Income/Total Investment*100
Net Operating Income:-
Turnover*Contribution Margin- Fixed Cost
$440000*60%- 220000= $44000
Net Investment for this year= $275000
ROI for This Year= 44000/275000*100= 16%
7) Margin Which Co. Will earn:-
Total Margin Amount/Total Turnover*100
This year Investment Margin Amount:- 440000*60%= $264000
Existing Margin Amount= $1540000
Total Margin= 264000+1540000= $1804000
Total Turnover= 440000+2200000= $2640000
Margin= 1804000/2640000*100= 68.3%
8) Total Turnover already calculated above= $2640000.00
9) Total ROI= Total Net Operating Profit/Total Investment *100
Total Profit:-
Existing:- $440000
This year investment:- $44000
Total:- $484000
Total Investment:-
Existing:- $1375000
This Year:- $275000
Total:- $1650000
ROI:- 484000/1650000*100= 29.3%
10)
A) Existing ROI:- 440000/1375000*100= 32%
Existing ROI is more than ROI of both investments so CEO will not peruse the investment.
NO
B) NO
Because Existing ROI is more than ROI of both investments.