Wiswell Inc.reported the following results from last year's operations: The average operating assets were $8,000,000.

At the beginning of this year, the company has a $900,000 investment opportunity that would involve sales of $2,070,000, a contribution margin ratio of 30% of sales, and fixed expenses of $538,200.The company's minimum required rate of return is 10%.If the company pursues the investment opportunity, this year's combined residual income for the entire company will be closest to:
A)$104,800
B)$925,600
C)($19,800)
D)$994,800

Question

Wiswell Inc.reported the following results from last year's operations:  The average operating assets were $8,000,000.

At the beginning of this year, the company has a $900,000 investment opportunity that would involve sales of $2,070,000, a contribution margin ratio of 30% of sales, and fixed expenses of $538,200.The company's minimum required rate of return is 10%.If the company pursues the investment opportunity, this year's combined residual income for the entire company will be closest to:
A)$104,800 
B)$925,600 
C)($19,800) 
D)$994,800

Quizplus · Accepted Answer

11ea7998_5c8a_5187_911b_556c67ed8c94_TB2627_00_TB2627_00 Net operating income = $912,000 + $82,800 = $994,800
Average operating assets = $8,000,000 + $900,000 = $8,900,000 11ea7998_5c8a_7898_911b_3b7577fddd2f_TB2627_00_TB2627_00