Financial data for Joel de Paris, Inc., for last year follow: The company paid d
ID: 2412917 • Letter: F
Question
Financial data for Joel de Paris, Inc., for last year follow:
The company paid dividends of $197,000 last year. The “Investment in Buisson, S.A.,” on the balance sheet represents an investment in the stock of another company. The company's minimum required rate of return of 15%.
Required:
1. Compute the company's average operating assets for last year.
2. Compute the company’s margin, turnover, and return on investment (ROI) for last year. (Round "Margin", "Turnover" and "ROI" to 2 decimal places.)
3. What was the company’s residual income last year?
Joel de Paris, Inc.Balance Sheet Beginning
Balance Ending
Balance Assets Cash $ 135,000 $ 128,000 Accounts receivable 345,000 472,000 Inventory 561,000 476,000 Plant and equipment, net 819,000 824,000 Investment in Buisson, S.A. 407,000 430,000 Land (undeveloped) 252,000 252,000 Total assets $ 2,519,000 $ 2,582,000 Liabilities and Stockholders' Equity Accounts payable $ 381,000 $ 345,000 Long-term debt 980,000 980,000 Stockholders' equity 1,158,000 1,257,000 Total liabilities and stockholders' equity $ 2,519,000 $ 2,582,000
Explanation / Answer
Answer:
1. Compute the company's average operating assets for last year.
Ending Balance
Beginning Balance
Cash
135,000
128,000
Accounts receivable
345,000
472,000
Inventory
561,000
476,000
Plant and equipment, net
819,000
824,000
Total Operating Assets
1,860,000
1,900,000
Average Operating Assets
=1860,000+1,900,000 /2
=3,760,000/2
=1,880,000
Average Operating Assets =1,880,000
________________________________________________________
2. Compute the company’s margin, turnover, and return on investment (ROI) for last year
Margin
= Net Operating Income / Net sales
=611,000 /4,700,000
=13%
Turnover
=Net sales / Average Operating Assets
=4,700,000/1,880,000
=2.5
ROI = Margin x Turnover
ROI =13% x 2.5
ROI=32.5%
____________________________________________________
3. What was the company’s residual income last year?
Net Operating Income
611,000
Minimum required return (15% x 1,880,000)
282000
Residual Income (296000-282000)
329000
Residual Income=$329,000
Average Operating Assets
1880000
Margin
13.00%
Turnover
2.5
ROI
32.50%
Residual Income
329000
Ending Balance
Beginning Balance
Cash
135,000
128,000
Accounts receivable
345,000
472,000
Inventory
561,000
476,000
Plant and equipment, net
819,000
824,000
Total Operating Assets
1,860,000
1,900,000
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