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 $207,720 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 $ 126,000 Accounts receivable 330,000 486,000 Inventory 564,000 475,000 Plant and equipment, net 900,000 873,000 Investment in Buisson, S.A. 399,000 433,000 Land (undeveloped) 252,000 253,000 Total assets $ 2,571,000 $ 2,646,000 Liabilities and Stockholders' Equity Accounts payable $ 373,000 $ 331,000 Long-term debt 993,000 993,000 Stockholders' equity 1,205,000 1,322,000 Total liabilities and stockholders' equity $ 2,571,000 $ 2,646,000

Explanation / Answer

1. Compute the company's average operating assets for last year.

Beginning Balances

Ending Balances

Cash

126000

126000

Accounts receivable

330000

486000

Inventory

564000

475000

Plant and equipment (net)

900000

873000

Total operating assets

1920000

1960000

Average operating assets = ($1920000 + $1960000) / 2

= $19,40,000

2. Compute the company’s margin, turnover, and return on investment (ROI) for last year

Margin        = Net operating income / Sales

                    = $6,55,720 / $50,44,000

                   = 13%

Turnover    =Sales / Average operating assets

                   = $50,44,000 / $19,40,000

                   = 2.6

ROI = Margin × Turnover

= 13% x 2.60

= 33.8%

3. What was the company’s residual income last year?

Net operating income                        $6,55,720  

Less : Minimum required return        $2,91,000

($19,40,000 x 15%)

Residual income $3,64,720

Beginning Balances

Ending Balances

Cash

126000

126000

Accounts receivable

330000

486000

Inventory

564000

475000

Plant and equipment (net)

900000

873000

Total operating assets

1920000

1960000

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