Financial data for Joel de Paris, Inc., for last year follow: The company paid d
ID: 2533140 • Letter: F
Question
Financial data for Joel de Paris, Inc., for last year follow:
The company paid dividends of $254,000 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 $ 134,000 $ 140,000 Accounts receivable 347,000 485,000 Inventory 580,000 475,000 Plant and equipment, net 819,000 820,000 Investment in Buisson, S.A. 396,000 426,000 Land (undeveloped) 249,000 248,000 Total assets $ 2,525,000 $ 2,594,000 Liabilities and Stockholders' Equity Accounts payable $ 378,000 $ 346,000 Long-term debt 965,000 965,000 Stockholders' equity 1,182,000 1,283,000 Total liabilities and stockholders' equity $ 2,525,000 $ 2,594,000
Explanation / Answer
1. Company's Average Operating Assets =
= Total Begining Operating Assets + Total Ending Operating Assets
_________________________________________________________
2
= Beg (Cash+Accounts Receivable+Inevntory+P&E) + End (Cash+Accounts Receivable+Inevntory+P&E)
_______________________________________________________________________________________
2
= Beg (134,000+347,000+580,000+819,000) + End (140,000+485,000+475,000+820,000)
____________________________________________________________________________
2
= Beg (1,880,000) + End (1,920,000)
________________________________
2
= 3,800,000
___________
2
= 1,900,000 Average Operating Assets
2. Company's margin =
= Net operating Income
____________________ x 100
Sales
= 355,000
____________ x 100
4,750,000
= 7.5 Margin
3. Asset Turnover (Complete Information not given)
= Sales
____________ x 100
Average Total Assets
= 4750000
____________ x 100
(2525000+2594000) / 2
= 4,750,000
_____________ x 100
2,559,500
= 185.5
4. Return on Investment
= Net Profit
____________ x 100
Cost of Investment
= (426,000 - 396,000)
____________________ x 100
396,000
= 7.58 ROI
5. Company's Residual Income
= Net Operating Income - (Min Required Return x Cost of Operating Assets)
= 655,000 - (15% x 3,800,000)
= 655,000 - 570,000
= 85000 Residual Income
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