Question

Westerville Company reported the following results from last year’s operations:

Sales	$	1,000,000
Variable expenses		300,000
Contribution margin		700,000
Fixed expenses		500,000
Net operating income	$	200,000
Average operating assets	$	625,000

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%.

5.	What is the turnover related to this year’s investment opportunity? (Round your answer to 2 decimal places.)

Answer 1

Turnover ratio measures value of company's revenue to value of its assets.

it measures companys efficiency with which company is using its assets for generating revenue.

Total sales for this years opportunity = $200,000

Total operating assets for t his years opportunity = $120,000

=1.67 times

turnover related to this year’s investment opportunity is 1.67 times

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