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Westerville Company reported the following results from last years operations: Sales...

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Accounting

Westerville Company reported the following results from last years operations:

Sales $ 1,200,000
Variable expenses 420,000
Contribution margin 780,000
Fixed expenses 600,000
Net operating income $ 180,000
Average operating assets $ 600,000

At the beginning of this year, the company has a $137,500 investment opportunity with the following cost and revenue characteristics:

Sales $ 220,000
Contribution margin ratio 60 % of sales
Fixed expenses $ 99,000

The companys minimum required rate of return is 20%.

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

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