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The Foundational 15 (LO11-1, LO11-2] [The following information applies to the questions displayed below.] Westerville Company reported the following results from last year's operations: Sales Variable expenses Contribution margin Fixed expenses Net operating income Average operating assets $ 2,000,000 640,000 1,360,000 860,000 $ 500,000 $ 1,250,000 At the beginning of this year, the company has a $250,000 investment opportunity with the following cost and revenue characteristics: Sales Contribution margin ratio Fixed expenses $ 400,000 70% of sales $ 220,000 The company's minimum required rate of return is 10%. 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? O Yes O No 10-b. Would the owners of the company want her to pursue the investment opportunity? o Yes O No 11. What is last year's residual income? Residual income 13. If the company pursues the investment opportunity and otherwise performs the same as last year, what residual income will it earn this year? Residual income 12. What is the residual income of this year's investment opportunity? Residual income 14. 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? O Yes O No 15-a. Assume that the contribution margin ratio of the investment opportunity was 60% instead of 709 Officer will earn a bonus only if her residual income from this year exceeds her residual income from investment opportunity? O Yes O No 15-b. Would the owners of the company want her to pursue the investment opportunity? o Yes O No

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