Westerville Company reported the following results from last yearâs operations:
Sales $ 1,400,000 Variable expenses 680,000 Contribution margin 720,000 Fixed expenses 440,000 Net operating income $ 280,000 Average operating assets $ 875,000
This year, the company has a $300,000 investment opportunity with the following cost and revenue characteristics:
Sales $ 480,000 Contribution margin ratio 80 % of sales Fixed expenses $ 336,000
The companyâs minimum required rate of return is 15%.
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Section BreakFoundational [LO11-1, LO11-2]
1.
value:
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Foundational 11-1
Required:
1. What is last yearâs margin?
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WorksheetFoundational 11-1
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2.
value:
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Foundational 11-2
2. What is last yearâs turnover? (Round your answer to 1 decimal place.)
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WorksheetFoundational 11-2
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3.
value:
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Foundational 11-3
3. What is last yearâs return on investment (ROI)?
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WorksheetFoundational 11-3
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4.
value:
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Foundational 11-4
4. What is the margin related to this yearâs investment opportunity?
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WorksheetFoundational 11-4
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5.
value:
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Foundational 11-5
5. What is the turnover related to this yearâs investment opportunity? (Round your answer to 1 decimal place.)
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WorksheetFoundational 11-5
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6.
value:
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Foundational 11-6
6. What is the ROI related to this yearâs investment opportunity?
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WorksheetFoundational 11-6
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7.
value:
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Foundational 11-7
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))
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WorksheetFoundational 11-7
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8.
value:
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Foundational 11-8
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.)
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WorksheetFoundational 11-8
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9.
value:
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Foundational 11-9
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
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WorksheetFoundational 11-9
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10.
value:
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Foundational 11-10
10-a. If Westervilleâs 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?
Yes No
10-b. Would the owners of the company want her to pursue the investment opportunity?
Yes No
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WorksheetFoundational 11-10
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11.
value:
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Foundational 11-11
11. What is last yearâs residual income?
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WorksheetFoundational 11-11
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12.
value:
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Foundational 11-12
12. What is the residual income of this yearâs investment opportunity?
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WorksheetFoundational 11-12
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13.
value:
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Foundational 11-13
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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WorksheetFoundational 11-13
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14.
value:
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Foundational 11-14
14. If Westervilleâs 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
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WorksheetFoundational 11-14
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15.
value:
0.76 points
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Foundational 11-15
15-a. Assume that the contribution margin ratio of the investment opportunity was 75% instead of 80%. If Westervilleâs 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?
Yes No
| Westerville Company reported the following results from last yearâs operations: |
| Sales | $ | 1,400,000 |
| Variable expenses | 680,000 | |
| Contribution margin | 720,000 | |
| Fixed expenses | 440,000 | |
| Net operating income | $ | 280,000 |
| Average operating assets | $ | 875,000 |
| This year, the company has a $300,000 investment opportunity with the following cost and revenue characteristics: |
| Sales | $ | 480,000 | |
| Contribution margin ratio | 80 | % of sales | |
| Fixed expenses | $ | 336,000 | |
| The companyâs minimum required rate of return is 15%. |
References
Section BreakFoundational [LO11-1, LO11-2]
1.
value:
0.66 points
Required information
Foundational 11-1
| Required: |
| 1. | What is last yearâs margin? |
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WorksheetFoundational 11-1
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2.
value:
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Foundational 11-2
| 2. | What is last yearâs turnover? (Round your answer to 1 decimal place.) |
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WorksheetFoundational 11-2
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3.
value:
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Foundational 11-3
| 3. | What is last yearâs return on investment (ROI)? |
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4.
value:
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Foundational 11-4
| 4. | What is the margin related to this yearâs investment opportunity? |
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WorksheetFoundational 11-4
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5.
value:
0.66 points
Required information
Foundational 11-5
| 5. | What is the turnover related to this yearâs investment opportunity? (Round your answer to 1 decimal place.) |
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WorksheetFoundational 11-5
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6.
value:
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Foundational 11-6
| 6. | What is the ROI related to this yearâs investment opportunity? |
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7.
value:
0.66 points
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Foundational 11-7
| 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)) |
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WorksheetFoundational 11-7
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8.
value:
0.66 points
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Foundational 11-8
| 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.) |
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WorksheetFoundational 11-8
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9.
value:
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Foundational 11-9
| 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
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WorksheetFoundational 11-9
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10.
value:
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Required information
Foundational 11-10
| 10-a. | If Westervilleâs 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? | ||||
| |||||
| 10-b. | Would the owners of the company want her to pursue the investment opportunity? | ||||
|
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WorksheetFoundational 11-10
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11.
value:
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Required information
Foundational 11-11
| 11. | What is last yearâs residual income? |
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WorksheetFoundational 11-11
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12.
value:
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Foundational 11-12
| 12. | What is the residual income of this yearâs investment opportunity? |
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WorksheetFoundational 11-12
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13.
value:
0.66 points
Required information
Foundational 11-13
| 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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WorksheetFoundational 11-13
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14.
value:
0.66 points
Required information
Foundational 11-14
| 14. | If Westervilleâs 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? | ||||
|
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WorksheetFoundational 11-14
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15.
value:
0.76 points
Required information
Foundational 11-15
| 15-a. | Assume that the contribution margin ratio of the investment opportunity was 75% instead of 80%. If Westervilleâs 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? | ||||
|
| 15-b. | Would the owners of the company want her to pursue the investment opportunity? | ||||
|
Related questions
| Cardinal Company is considering a project that would require a $2,865,000 investment in equipment with a useful life of five years. At the end of five years, the project would terminate and the equipment would be sold for its salvage value of $300,000. The companyâs discount rate is 12%. The project would provide net operating income each year as follows: |
| Sales | $ | 2,869,000 | ||
| Variable expenses | 1,126,000 | |||
| Contribution margin | 1,743,000 | |||
| Fixed expenses: | ||||
| Advertising, salaries, and other fixed out-of-pocket costs | $ | 709,000 | ||
| Depreciation | 513,000 | |||
| Total fixed expenses | 1,222,000 | |||
| Net operating income | $ | 521,000 | ||
1.
value:
0.66 points
Required information
| Required: |
| 1. | Which item(s) in the income statement shown above will not affect cash flows? (You may select more than one answer. Click the box with a check mark for correct answers and click to empty the box for the wrong answers.) | ||||||||
|
References
eBook & Resources
WorksheetLearning Objective: 11-01 Determine the payback period for an investment.Learning Objective: 11-03 Rank investment projects in order of preference.
Difficulty: 2 MediumLearning Objective: 11-02 Evaluate the acceptability of an investment project using the net present value method.Learning Objective: 11-04 Compute the simple rate of return for an investment.
2.
value:
0.66 points
Required information
| 2. | What are the projectâs annual net cash inflows? |
References
eBook & Resources
WorksheetLearning Objective: 11-01 Determine the payback period for an investment.Learning Objective: 11-03 Rank investment projects in order of preference.
Difficulty: 2 MediumLearning Objective: 11-02 Evaluate the acceptability of an investment project using the net present value method.Learning Objective: 11-04 Compute the simple rate of return for an investment.
Check my work
3.
value:
0.66 points
Required information
Click here to view Exhibit 11B-2, to determine the appropriate discount factor(s) using table.
| 3. | What is the present value of the projectâs annual net cash inflows? (Use the appropriate table to determine the discount factor(s) and final answer to the nearest dollar amount.) |
References
eBook & Resources
WorksheetLearning Objective: 11-01 Determine the payback period for an investment.Learning Objective: 11-03 Rank investment projects in order of preference.
Difficulty: 2 MediumLearning Objective: 11-02 Evaluate the acceptability of an investment project using the net present value method.Learning Objective: 11-04 Compute the simple rate of return for an investment.
Check my work
4.
value:
0.66 points
Required information
Click here to view Exhibit 11B-1, to determine the appropriate discount factor(s) using table.
| 4. | What is the present value of the equipmentâs salvage value at the end of five years? (Use the appropriate table to determine the discount factor(s) and final answer to the nearest dollar amount.) |
References
eBook & Resources
WorksheetLearning Objective: 11-01 Determine the payback period for an investment.Learning Objective: 11-03 Rank investment projects in order of preference.
Difficulty: 2 MediumLearning Objective: 11-02 Evaluate the acceptability of an investment project using the net present value method.Learning Objective: 11-04 Compute the simple rate of return for an investment.
Check my work
5.
value:
0.66 points
Required information
Click here to view Exhibit 11B-1 and Exhibit 11B-2, to determine the appropriate discount factor(s) using tables.
| 5. | What is the projectâs net present value? (Use the appropriate table to determine the discount factor(s) and final answer to the nearest dollar amount.) |
References
eBook & Resources
WorksheetLearning Objective: 11-01 Determine the payback period for an investment.Learning Objective: 11-03 Rank investment projects in order of preference.
Difficulty: 2 MediumLearning Objective: 11-02 Evaluate the acceptability of an investment project using the net present value method.Learning Objective: 11-04 Compute the simple rate of return for an investment.
Check my work
6.
value:
0.66 points
Required information
Click here to view Exhibit 11B-1 and Exhibit 11B-2, to determine the appropriate discount factor(s) using tables.
| 6. | What is the project profitability index for this project? (Use the appropriate table to determine the discount factor(s) and final answer to 2 decimal places.) |
References
eBook & Resources
WorksheetLearning Objective: 11-01 Determine the payback period for an investment.Learning Objective: 11-03 Rank investment projects in order of preference.
Difficulty: 2 MediumLearning Objective: 11-02 Evaluate the acceptability of an investment project using the net present value method.Learning Objective: 11-04 Compute the simple rate of return for an investment.
Check my work
7.
value:
0.66 points
Required information
| 7. | What is the projectâs payback period? (Round your answer to 2 decimal places.) |
References
eBook & Resources
WorksheetLearning Objective: 11-01 Determine the payback period for an investment.Learning Objective: 11-03 Rank investment projects in order of preference.
Difficulty: 2 MediumLearning Objective: 11-02 Evaluate the acceptability of an investment project using the net present value method.Learning Objective: 11-04 Compute the simple rate of return for an investment.
Check my work
8.
value:
0.66 points
Required information
| 8. | What is the projectâs simple rate of return for each of the five years? (Round your answer to 2 decimal places. (i.e 0.1234 should be entered as 12.34.)) |
References
eBook & Resources
WorksheetLearning Objective: 11-01 Determine the payback period for an investment.Learning Objective: 11-03 Rank investment projects in order of preference.
Difficulty: 2 MediumLearning Objective: 11-02 Evaluate the acceptability of an investment project using the net present value method.Learning Objective: 11-04 Compute the simple rate of return for an investment.
Check my work
9.
value:
0.66 points
Required information
| 9. | If the companyâs discount rate was 14% instead of 12%, would you expect the project's net present value to be higher than, lower than, or the same? | ||||||
|
References
eBook & Resources
WorksheetLearning Objective: 11-01 Determine the payback period for an investment.Learning Objective: 11-03 Rank investment projects in order of preference.
Difficulty: 2 MediumLearning Objective: 11-02 Evaluate the acceptability of an investment project using the net present value method.Learning Objective: 11-04 Compute the simple rate of return for an investment.
Check my work
10.
value:
0.66 points
Required information
| 10. | If the equipmentâs salvage value was $500,000 instead of $300,000, would you expect the projectâs payback period to be higher than, lower than, or the same? | ||||||
|
References
eBook & Resources
WorksheetLearning Objective: 11-01 Determine the payback period for an investment.Learning Objective: 11-03 Rank investment projects in order of preference.
Difficulty: 2 MediumLearning Objective: 11-02 Evaluate the acceptability of an investment project using the net present value method.Learning Objective: 11-04 Compute the simple rate of return for an investment.
Check my work
11.
value:
0.66 points
Required information
| 11. | If the equipmentâs salvage value was $500,000 instead of $300,000, would you expect the project's net present value to be higher than, lower than, or the same? | ||||||
|
References
eBook & Resources
WorksheetLearning Objective: 11-01 Determine the payback period for an investment.Learning Objective: 11-03 Rank investment projects in order of preference.
Difficulty: 2 MediumLearning Objective: 11-02 Evaluate the acceptability of an investment project using the net present value method.Learning Objective: 11-04 Compute the simple rate of return for an investment.
Check my work
12.
value:
0.66 points
Required information
| 12. | If the equipmentâs salvage value was $500,000 instead of $300,000, what would be the projectâs simple rate of return? (Round your answer to 2 decimal places. (i.e 0.1234 should be entered as 12.34.)) |
`
References
eBook & Resources
WorksheetLearning Objective: 11-01 Determine the payback period for an investment.Learning Objective: 11-03 Rank investment projects in order of preference.
Difficulty: 2 MediumLearning Objective: 11-02 Evaluate the acceptability of an investment project using the net present value method.Learning Objective: 11-04 Compute the simple rate of return for an investment.
Check my work
13.
value:
0.66 points
Required information
Click here to view Exhibit 11B-1 and Exhibit 11B-2, to determine the appropriate discount factor(s) using tables.
| 13. | Assume a postaudit showed that all estimates (including total sales) were exactly correct except for the variable expense ratio, which actually turned out to be 50%. What was the projectâs actual net present value? (Negative amount should be indicated by a minus sign. Use the appropriate table to determine the discount factor(s), other intermediate calculations and final answer to the nearest whole dollar.) |
References
eBook & Resources
WorksheetLearning Objective: 11-01 Determine the payback period for an investment.Learning Objective: 11-03 Rank investment projects in order of preference.
Difficulty: 2 MediumLearning Objective: 11-02 Evaluate the acceptability of an investment project using the net present value method.Learning Objective: 11-04 Compute the simple rate of return for an investment.
Check my work
14.
value:
0.66 points
Required information
| 14. | Assume a postaudit showed that all estimates (including total sales) were exactly correct except for the variable expense ratio, which actually turned out to be 50%. What was the projectâs actual payback period? (Round your answer to 2 decimal places.) |
References
eBook & Resources
WorksheetLearning Objective: 11-01 Determine the payback period for an investment.Learning Objective: 11-03 Rank investment projects in order of preference.
Difficulty: 2 MediumLearning Objective: 11-02 Evaluate the acceptability of an investment project using the net present value method.Learning Objective: 11-04 Compute the simple rate of return for an investment.
Check my work
15.
value:
0.76 points
Required information
| 15. | Assume a postaudit showed that all estimates (including total sales) were exactly correct except for the variable expense ratio, which actually turned out to be 50%. What was the projectâs actual simple rate of return? (Round your answer to 2 decimal places. (i.e 0.1234 should be entered as 12.34.) Exhibit 11b-1 http://lectures.mhhe.com/connect/0078025419/Exhibit/Exhibit%2011B-1.JPG Exhibit 11b-2 http://lectures.mhhe.com/connect/0078025419/Exhibit/Exhibit%2011B-2.JPG |
