Westerville Company reported the following results from last

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

This year, the company has a $150,000 investment opportunity with the following cost and revenue characteristics:

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

1a. What is last year’s margin?

1b. What is last year’s return on investment (ROI)?

1c. What is the margin related to this year’s investment opportunity?

1d. What is the ROI related to this year’s investment opportunity?

1e. 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))

1f. 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))

1g. What is last year’s residual income?

1h. If the company pursues the investment opportunity and otherwise performs the same as last year, what residual income will it earn this year?

Solution

1a) Margin= Net op income/sales
=240000/1200000=20%
1b)ROI= Net op income/avg op assets=240000/600000=40%
1g)Residual income=Op income-(Cost of capital*avg op assets)
=240000-(15%*600000)=150000

For rest of the options we need details of this year investment which is missing