Westerville Company reported the following results from last year’s operations:
|Net operating income||$210,000|
|Average operating assets||$875,000|
This year, the company has a $350,000 investment opportunity with the following cost and revenue characteristics:
|Contribution margin ratio||70% of sales|
The company’s minimum required rate of return is 15%.
- What is the residual income of this year’s investment opportunity?
- If the company pursues the investment opportunity and otherwise performs the same as last year, what residual income will it earn this year?