Reference no: EM131987602
Problem - Shrewsbury Inc. reported the following results from last year's operations:
Sales $7,200,000
Variable expenses 5,400,000
Contribution margin 1,800,000
Fixed expenses 1,296,000
Net operating income $504,000
Average operating assets $4,000,000
At the beginning of this year, the company has a $800,000 investment opportunity with the following characteristics:
Sales $2,480,000
Contribution margin ratio 40% of sales
Fixed expenses $868,000
The company's minimum required rate of return is 14%.
If the company pursues the investment opportunity, this year's combined residual income for the entire company will be closest to:
$628,000
$672,000
$23,200
($44,000)