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 companys minimum required rate of return is 15%.

1.

value: 1.00 points

Required information

Required:

1.	What is last years margin?

References

WorksheetLearning Objective: 11-01 Compute return on investment (ROI) and show how changes in sales, expenses, and assets affect ROI.

Difficulty: 2 MediumLearning Objective: 11-02 Compute residual income and understand its strengths and weaknesses.

2.

value: 1.00 points

Required information

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

References

WorksheetLearning Objective: 11-01 Compute return on investment (ROI) and show how changes in sales, expenses, and assets affect ROI.

Difficulty: 2 MediumLearning Objective: 11-02 Compute residual income and understand its strengths and weaknesses.

3.

value: 1.00 points

Required information

3.	What is last years return on investment (ROI)?

References

WorksheetLearning Objective: 11-01 Compute return on investment (ROI) and show how changes in sales, expenses, and assets affect ROI.

Difficulty: 2 MediumLearning Objective: 11-02 Compute residual income and understand its strengths and weaknesses.

4.

value: 1.00 points

Required information

4.	What is the margin related to this years investment opportunity?

References

WorksheetLearning Objective: 11-01 Compute return on investment (ROI) and show how changes in sales, expenses, and assets affect ROI.

Difficulty: 2 MediumLearning Objective: 11-02 Compute residual income and understand its strengths and weaknesses.

5.

value: 1.00 points

Required information

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

References

WorksheetLearning Objective: 11-01 Compute return on investment (ROI) and show how changes in sales, expenses, and assets affect ROI.

Difficulty: 2 MediumLearning Objective: 11-02 Compute residual income and understand its strengths and weaknesses.

6.

value: 1.00 points

Required information

6.	What is the ROI related to this years investment opportunity?

References

WorksheetLearning Objective: 11-01 Compute return on investment (ROI) and show how changes in sales, expenses, and assets affect ROI.

Difficulty: 2 MediumLearning Objective: 11-02 Compute residual income and understand its strengths and weaknesses.

7.

value: 1.00 points

Required information

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))

References

WorksheetLearning Objective: 11-01 Compute return on investment (ROI) and show how changes in sales, expenses, and assets affect ROI.

Difficulty: 2 MediumLearning Objective: 11-02 Compute residual income and understand its strengths and weaknesses.

8.

value: 1.00 points

Required information

8.	If the company pursues the investment opportunity and otherwise performs the same as last year, what turnover will it earn this year? (Round your answer to 2 decimal places.)

References

WorksheetLearning Objective: 11-01 Compute return on investment (ROI) and show how changes in sales, expenses, and assets affect ROI.

Difficulty: 2 MediumLearning Objective: 11-02 Compute residual income and understand its strengths and weaknesses.

9.

value: 1.00 points

Required information

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., 0.1234 should be considered as 12.3%.))

Garrison 15e Recheck 2014-12-29

References

WorksheetLearning Objective: 11-01 Compute return on investment (ROI) and show how changes in sales, expenses, and assets affect ROI.

Difficulty: 2 MediumLearning Objective: 11-02 Compute residual income and understand its strengths and weaknesses.

10.

value: 1.00 points

Required information

10-a.	If Westervilles 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?
	No Yes
10-b.	Would the owners of the company want her to pursue the investment opportunity?
	No Yes

References

WorksheetLearning Objective: 11-01 Compute return on investment (ROI) and show how changes in sales, expenses, and assets affect ROI.

Difficulty: 2 MediumLearning Objective: 11-02 Compute residual income and understand its strengths and weaknesses.

11.

value: 1.00 points

Required information

11.	What is last years residual income?

References

WorksheetLearning Objective: 11-01 Compute return on investment (ROI) and show how changes in sales, expenses, and assets affect ROI.

Difficulty: 2 MediumLearning Objective: 11-02 Compute residual income and understand its strengths and weaknesses.

12.

value: 1.00 points

Required information

12.	What is the residual income of this years investment opportunity?

References

WorksheetLearning Objective: 11-01 Compute return on investment (ROI) and show how changes in sales, expenses, and assets affect ROI.

Difficulty: 2 MediumLearning Objective: 11-02 Compute residual income and understand its strengths and weaknesses.

13.

value: 1.00 points

Required information

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

References

WorksheetLearning Objective: 11-01 Compute return on investment (ROI) and show how changes in sales, expenses, and assets affect ROI.

Difficulty: 2 MediumLearning Objective: 11-02 Compute residual income and understand its strengths and weaknesses.

14.

value: 1.00 points

Required information

14.	If Westervilles 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?
	No Yes

References

WorksheetLearning Objective: 11-01 Compute return on investment (ROI) and show how changes in sales, expenses, and assets affect ROI.

Difficulty: 2 MediumLearning Objective: 11-02 Compute residual income and understand its strengths and weaknesses.

15.

value: 1.00 points

Required information

15-a.	Assume that the contribution margin ratio of the investment opportunity was 75% instead of 80%. If Westervilles 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?
	No Yes

15-b.	Would the owners of the company want her to pursue the investment opportunity?
	No Yes