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Westerville Company_ROI Analysis

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Question;Westerville Company reported the;following results from last years operations;Sales $1,000,000;Variable Expenses $300,000;Contribution Margin $700,000;Fixed Expenses $500,000;Net Operating Income: $200,000;Average Operating Assets: $625,000;This year the company has a $120,000;investment opportunity with the following cost and revenue characteristics;Sales $200,000;Contribution Margin Ration 60% of sales;Fixed Expenses $90,000;The company?s minimum required rate of;return is 15%;1. What;is last year?s margin?;2. What;is last year?s turnover? Round answer to one decimal place;3. What;is last year?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 year?s investment opportunity? (Round to 2;decimal Places);6. What;is the ROI related to this year?s investment opportunity? (%);7. If;the company pursues the investment opportunity and otherwise performs the same;as last year, what margin will it earn this year? (Round to one Decimal Place);8. If;the company pursues the investment opportunity and otherwise performs the same;as last year, what turnover will it earn this year? (Two Decimal Places);9. If;the company pursues the investment opportunity and otherwise performs the same;as last year, what ROI will it earn this year? (One Decimal Place) (%);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?;B. Would the owners of;the company want her to pursue the investment opportunity?;11. What is last year?s;residual income?;12.What;is the residual income of this year?s investment opportunity?;13.If;the company pursues the investment opportunity and otherwise performs the same;as last year, what residual income will it earn this year?;14. If Westerville?s;Chief Executive Officer will earn a bonus only if her residual income from this;year exceeds her residual income from last year, would she pursue the;investment opportunity?;15. A. Assume that the;contribution margin ratio of the investment opportunity was 50% instead of 60%.;If Westerville?s Chief Executive Officer will earn a bonus only if her residual;income from this year exceeds her residual income from last year, would she;pursue the investment opportunity?;B. Would the owners;of the company want her to pursue the investment opportunity?

 

Paper#37362 | Written in 18-Jul-2015

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