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

Question

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

joel de paris income statement

Sales $4,092,000     

Operating expenses  3,478,200       

Net operating income  613,800   

  Interest and taxes:          

Interest expense$ 118,000          

Tax expense205,000 323,000      

Net income $290,800    

The company paid dividends of $164,800 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.

margin percent

turnover

roi percent

The board of directors of Joel de Paris, Inc., has set a minimum required rate of return of 16%. What was the company’s residual income last year?

net operating income

minimum required return

residual income

Cash $ 134,000 $ 133,000   Accounts receivable 349,000 480,000   Inventory 562,000 482,000   Plant and equipment, net 795,000 785,000   Investment in Buisson, S.A. 396,000 430,000   Land (undeveloped) 255,000 249,000   Total assets $ 2,491,000 $ 2,559,000 Liabilities and Stockholders' Equity   Accounts payable $ 390,000 $ 332,000   Long-term debt 970,000 970,000   Stockholders' equity 1,131,000 1,257,000   Total liabilities and stockholders' equity $ 2,491,000 $ 2,559,000

Explanation / Answer

Margin = Net income / sales =

290800/4092000 = 7.11%

Turnover = Sales / Total assets

= 4,092,000 / 2,491,000

= 1.64 times

ROi = Net income / total assets

= 290,800 / 2,491,000

= 11.67%

Net operating income = 613,800

required rate of return = 16% * 2,491,000

= 398560

Residual income = 613,800 - 398,560

= 215,240

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