Westerville Company Reported the follwoing results from last years operations:
Sales…….$1,000,000.00
Variable Expenses……..$300,000.00
Contribution Margin……..$$700,000.00
Fixed Expenses………….$500,000.00
Net Operating Income……$200,000.00
Average Operating Assets……..$625,000.00
This year the company has a $120,000.00 investment opportunity with the following cost revenue characteristics:
Sales…..$200,000.00
Contribution Margin Ratio……..60% of sales.
Fixed Expenses…..$90,000.00
If the compmany pursues the investment opportunity and otherwise performs the same as last year, what ROI will it earn this year?
Westerville’s Chief Executive Officer will earn a hourly bonus only if her residual income from las year exceeeds her residual income from last year. Would she pursue the investment opportunity?