Less interest and taxes: The company paid dividends of $190,000 last year. The \

Question

  Less interest and taxes:

The company paid dividends of $190,000 last year. The "Investment in Pine Company" on the statement of financial position represents an investment in the stock of another company.

Compute the company's margin, turnover, and return on investment for last year. (Round your intermediate calculations and final answers to 2 decimal places. Omit the "%" sign in your response.)

The Board of Directors of Windsor, Inc. has set a minimum required return of 35%. What was the company's residual income last year? (Round your intermediate calculations and final answers to 2 decimal places. Omit the "$" sign in your response.)

Financial data for Windsor, Inc. for last year appear below:

Explanation / Answer

a.

Margin is the Net operating income divided by the Sales

533,000/2,050,000

= 26%

Turnover is the Sales divided by average of operating assets which is calculated as shown below:

Sales/Average of operating assets

= 2,050,000/1,360,380= 1.51

Return on investment is the operating income divided by average of operating assets.

533,000/1,360,380 = 39.2%

b.

Residual income of Windsor Inc. is set as under:

Net operating income is 533,000

35% of average operating assets is 1,360,380*35% = 476,133

So, the residual income is $ 56,867

Beginning Ending Balance Balance   Assets:   Cash 3,35,000 4,71,760   Accounts receivable 2,10,000 1,76,000   Inventory 2,96,000 2,64,000   Plant and equipment (net) 5,08,000 4,60,000 Total 13,49,000 13,71,760 27,20,760 Average of operating assets 1360380

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