Westerville Company reported the following results from last years operations: Sales $ 1,200,000 Variable expenses...
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Westerville Company reported the following results from last years operations: Sales $ 1,200,000 Variable expenses 320,000 Contribution margin 880,000 Fixed expenses 640,000 Net operating income $ 240,000 Average operating assets $ 600,000 At the beginning of this year, the company has a $150,000 investment opportunity with the following cost and revenue characteristics: Sales $ 240,000 Contribution margin ratio 50 % of sales Fixed expenses $ 84,000 The companys minimum required rate of return is 15%.
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?
Yes
No
15-a. Assume that the contribution margin ratio of the investment opportunity was 40% instead of 50%. 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?
Yes
No
15-b. Would the owners of the company want her to pursue the investment opportunity?
Yes
No
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