Financial data for Joel de Paris, Inc., for last year follow: The company paid d
ID: 2525531 • Letter: F
Question
Financial data for Joel de Paris, Inc., for last year follow:
The company paid dividends of $359,800 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 $ 126,000 $ 128,000 Accounts receivable 338,000 480,000 Inventory 561,000 485,000 Plant and equipment, net 845,000 817,000 Investment in Buisson, S.A. 392,000 434,000 Land (undeveloped) 255,000 252,000 Total assets $ 2,517,000 $ 2,596,000 Liabilities and Stockholders' Equity Accounts payable $ 382,000 $ 344,000 Long-term debt 1,016,000 1,016,000 Stockholders' equity 1,119,000 1,236,000 Total liabilities and stockholders' equity $ 2,517,000 $ 2,596,000
Explanation / Answer
1. Compute the company's average operating assets for last year.
Beginning Balances
Ending Balances
Cash
126000
128000
Accounts receivable
338000
480000
Inventory
561000
485000
Plant and equipment (net)
845000
817000
Total operating assets
1870000
1910000
Average operating assets = ($1870000 + $1910000) / 2
= $18,90,000
2. Compute the company’s margin, turnover, and return on investment (ROI) for last year
Margin = Net operating income / Sales
= $793800 / 5,292,000
= 15%
Turnover =Sales / Average operating assets
= 5,292,000 / 1890000
= 2.80
ROI = Margin × Turnover= 15% x 2.80 = 42%
3. What was the company’s residual income last year?
Net operating income $793800
Less : Minimum required return $283500
($1890000 x 15%)
Residual income $5,10,300
1
Average operating assets
$18,90,000
2
Margin
15%
Turnover
2.80
ROI
42%
3
Residual income
$5,10,300
Beginning Balances
Ending Balances
Cash
126000
128000
Accounts receivable
338000
480000
Inventory
561000
485000
Plant and equipment (net)
845000
817000
Total operating assets
1870000
1910000
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