Wryski Corporation Had Net Operating Income of $150,000 and Average

question 48

Essay

Wryski Corporation had net operating income of $150,000 and average operating assets of $500,000. The company requires a return on investment of 19%.
Required:
a. Calculate the company's current return on investment and residual income.
b. The company is investigating an investment of $400,000 in project that will generate annual net operating income of $78,000. What is the return on investment of the project? What is the residual income of the project? Should the company invest in this project?

---

Definitions:

Relevant Range

The span of activity or volume in which the assumptions about fixed and variable cost behavior remain valid.

Variable Cost

A cost that changes in direct proportion to changes in the level of production or sales volume.

Total Fixed Cost

The sum of all constant expenses that a company incurs, regardless of the manufacturing or sales volume.

Relevant Range

The range of activity or volume over which the assumptions about fixed and variable cost behavior hold true.