Financial data for Joel de Paris, Inc., for last year follow: The company paid d

Question

Financial data for Joel de Paris, Inc., for last year follow:

     The company paid dividends of $258,240 last year. The “Investment in Buisson, S.A.,” on the balance sheet represents an investment in the stock of another company.

Compute the company’s margin, turnover, and return on investment (ROI) for last year. (Round your answers to 2 decimal places.)

       

The board of directors of Joel de Paris, Inc., has set a minimum required rate of return of 21%. What was the company’s residual income last year?

Joel de Paris, Inc.
Balance Sheet   Beginning
Balance Ending
Balance Assets   Cash $ 129,000 $ 133,000   Accounts receivable 340,000 476,000   Inventory 571,000 482,000   Plant and equipment, net 870,000 859,000   Investment in Buisson, S.A. 394,000 434,000   Land (undeveloped) 248,000 250,000   Total assets $ 2,552,000 $ 2,634,000 Liabilities and Stockholders' Equity   Accounts payable $ 383,000 $ 339,000   Long-term debt 1,042,000 1,042,000   Stockholders' equity 1,127,000 1,253,000   Total liabilities and stockholders' equity $ 2,552,000 $ 2,634,000

Explanation / Answer

1)

Margin = Net Operating Income/Sale

Margin =710240/4439000

Margin = 16%

Tutnover = Net Sale/Average Operating Asset

Tutnover = 4439000/1930000

Tutnover = 2.30

ROI = Net Operating Income/Average Operating Asset

ROI = 710240/1930000

ROI = 36.80%

2)

Residual Income = Net Operating income - Average Operating Asset*Minimum Required return

Residual Income = 710240 - 1930000*21%

Residual Income = $ 304,940

Working

Average operating assets = (Beginning operating Asset + Ending operating Asset)/2

Average operating assets= (1910000+1950000)/2

Average operating assets = $ 1,930,000

  Beginning Ending Balance Balance Assets   Cash 129,000 133,000   Accounts receivable 340,000 476,000   Inventory 571,000 482,000   Plant and equipment, net 870,000 859,000 Operating Asset 1910000 1950000

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