Westerville Company reported the following results from last year’s operations: Sales $ 1,000,000 Variable expenses 300,000 Cont
ribution margin 700,000 Fixed expenses 500,000 Net operating income $ 200,000 Average operating assets $ 625,000 At the beginning of this year, the company has a $120,000 investment opportunity with the following cost and revenue characteristics: Sales $ 200,000 Contribution margin ratio 60 % of sales Fixed expenses $ 90,000 The company’s minimum required rate of return is 15%. Foundational 10-1 Required: 1. What is last year’s margin?
1 answer:
You might be interested in
Answer:
b. Accept Project A and reject Project B.
Explanation:
To verify project viability at a required return rate of 16%, simply calculate the project's net present value at a rate of 16%. If the NPV is positive, then the project should be accepted, otherwise it should be rejected.
Project A:
Project A should be accepted.
Project B:
Project B should be rejected.