Do these answers seem correct? Financial data for Windsor, Inc. for last year ap

Question

Do these answers seem correct?

Financial data for Windsor, Inc. for last year appear below: Windsor, Inc. Statements of Financial Position Beginning Balance Ending Balance Assets Cash Accounts receivable Inventory Plant and equipment (net) Investment in Pine Company Land (undeveloped) $ 266,000 $ 725,370 138,000 285,000 380,000 333,000 194,000 195,000 328,000 475,000 281,000 194,000 Total assets $1,739,000 $2,055,370 Liabilities and owners' equity: Accounts payable Long-term debt Owners' equity $ 170,000 226,000 846,000 983,370 846,000 723,000 Total liabilities and owners' equity $1,739,000 $2,055,370 Windsor, Inc. Income statement Sales Less operating expenses $ 2,390,000 1,696,900 Net operating income Less interest and taxes: Interest expense Tax expense 693,100 $101,800 207,930 309,730 Net income $ 383,370

Explanation / Answer

(a) Company's Margin = 383370 / 2390000 = 16.04%

Turnover = 2390000 / Average Total assets

= 2390000 / (1739000 + 2055370) / 2 = 1.26 times

Return on Investment = 383370 / (723000 + 983370) / 2 = 44.93%

(b) If the management target is minimum required return of 45%, the company's residual income last year =

= 383370 - 123000 = $260370

As the Minimum required return is of 45%, so the residual income last year =

= (723000 + 983370) / 2 * 45% -

Residual Income = 383933.25 - 383370 = $563.25

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