What is margin related to this year investment opportunity

Assignment Help Financial Management

Reference no: EM131859911

Westerville Company reported the following results from last year’s operations:

Sales $ 1,300,000

Variable expenses 440,000

Contribution margin 860,000

Fixed expenses 600,000

Net operating income $ 260,000

Average operating assets $ 812,500

This year, the company has a $162,500 investment opportunity with the following cost and revenue characteristics:

Sales $ 260,000

Contribution margin ratio 80 % of sales

Fixed expenses $ 182,000

The company’s minimum required rate of return is 15%.

1. What is last year’s margin?

Margin %

2. What is last year’s turnover? (Round your answer to 1 decimal place.)

3. What is last year’s return on investment (ROI)?

4. What is the margin related to this year’s investment opportunity?

Margin %

5. What is the turnover related to this year’s investment opportunity? (Round your answer to 1 decimal place.)

6. What is the ROI related to this year’s investment opportunity?

ROI %

7. If the company pursues the investment opportunity and otherwise performs the same as last year, what margin will it earn this year? (Round your percentage answer to 1 decimal place (i.e .1234 should be entered as 12.3))

MARGIN %

9. If the company pursues the investment opportunity and otherwise performs the same as last year, what ROI will it earn this year? (Round your percentage answer to 1 decimal place (i.e .1234 should be entered as 12.3))

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?

Yes

10-b. Would the owners of the company want her to pursue the investment opportunity?

Yes

11. 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?

Yes

12-a. Assume that the contribution margin ratio of the investment opportunity was 75% instead of 80%. 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?

Yes

12-b. Would the owners of the company want her to pursue the investment opportunity?

Yes

Reference no: EM131859911

Questions Cloud

Bond has five years to maturity and pays interest : A bond has 5 years to maturity and pays interest of $20 each half-year. What is its maximum price?

Sensitive to individual currency movements : A company may become more exposed or sensitive to an individual currency's movements over time because

Explain use of technology in marketing and selling goods : Could someone find me a feature article from a major business and marketing publication/journal which focuses on the use of technology in marketing.

Prices for zero-coupon bonds of various maturities : The following is a list of prices for zero-coupon bonds of various maturities.

What is margin related to this year investment opportunity : What is last year’s margin? What is last year’s return on investment (ROI)? What is the margin related to this year’s investment opportunity?

Calculate the economic production quantity : Couch Potato Products manufactures steel springs for use in lazy master Deluxe couches. The annual demand for these steel springs is 50,000 units.

What are the costs and benefits to employers : What are the costs and benefits to employers of being responsive to the applicant's perspective throughout the selection process?

How much sociological content is exposed : Could one posit the argument that elasticity as a measurement is a reflection of consumer values, culture and preference? How much sociological content.

True regarding currency correlations : Which of the following is not a reason why translation exposure may be relevant to an MNC? Which of the following is not true regarding currency correlations?

User Account

All Pages