The foliowing information appliles to the questions displayed below Westervile C
ID: 2743291 • Letter: T
Question
The foliowing information appliles to the questions displayed below Westervile Company reported the following resuts from last years operations Sales 52 200000 660000 arlable expenses Contribution margin Flxed expenses 1540000 100.000 Net operating Income 5 440000 Average aperating assets S 1375.000 This year, the company has a $275,000 Investment opportunity wih the tolowing cost and revenue Sales 5440.000 60 % or sales Flxed expenses 5220,000 The company's minimum required rate of return Is 13% . What is last year's margin? hat is last year's turnover? (Round your answer to 1 decimal place) What is lastyear's return on investment (ROI)? 4. What is the margin related to this year's investment opportunity? 5. What is the turnover related to this years investment opportunity? (Round your answer to 1 decimal place.) What is the ROl related to this year's investmentopportunity? fthe company pursues the investment opportunity and otherwise performs the same as last year, what nargin wil iean this year? (Round your percentage answerto 1 decimal place (ie 1234 shouild be nteredas 123]) If the company pursues the investment opportunity and otherwise performs the same as last year, what urnover will itearn this year? Round your answer to 2 answerto 2 decimal places.)Explanation / Answer
Ans;
1) last year margin = net operating income / sales
= 228,000/1,200,000
= 19%
2) Turnover ( last year) = Sales / Average operating asses
= 1,200,000/600,000
=2
3) ROI = 19%*2 = 38%
4) this year margin = 36,000/150,000 = 24%
5) Turnover = 240,000/150,000 = 1.6
6) ROI = 24*1.6 = 38.4%
7) Margin = 18.33%
8) Turnover = 1,440,000/750,000 = 1.92
9) Roi = 18.33*1.92 = 35.1936
10)No
11) last year residual income =
Net operating income = 228,000
less:600,000 @15% = 90,000
residual income = 138,000
12) Average operating asset 150,000
Net operating income 36,000
(150,000@15%) 22,500
Residual income 13,500
13) Net operating income 264,000
Residual (750,000@15%) (112,500)
residual income $151,500
140 Would pursue since it will raise residual incom e