Financial data for Joel de Paris, Inc., for last year follow: The company paid d
ID: 2535512 • Letter: F
Question
Financial data for Joel de Paris, Inc., for last year follow:
The company paid dividends of $178,580 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 $ 127,000 $ 139,000 Accounts receivable 346,000 489,000 Inventory 561,000 474,000 Plant and equipment, net 836,000 808,000 Investment in Buisson, S.A. 407,000 432,000 Land (undeveloped) 254,000 252,000 Total assets $ 2,531,000 $ 2,594,000 Liabilities and Stockholders' Equity Accounts payable $ 386,000 $ 338,000 Long-term debt 1,021,000 1,021,000 Stockholders' equity 1,124,000 1,235,000 Total liabilities and stockholders' equity $ 2,531,000 $ 2,594,000
Explanation / Answer
1
Average operating assets
$18,90,000
2
Margin
14%
Turnover
2.30
ROI
32.20%
3
Residual income
$3,25,080
1. Compute the company's average operating assets for last year.
Beginning Balances
Ending Balances
Cash
127000
139000
Accounts receivable
346000
489000
Inventory
561000
474000
Plant and equipment (net)
836000
808000
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)*100
= ($608580 / $4347000)*100
= 14%
Turnover =Sales / Average operating assets
= $4347000 / 1890000
= 2.30
ROI = Margin × Turnover= 14% x 2.3 = 32.2%
3. What was the company’s residual income last year?
Net operating income $608580
Less : Minimum required return $283500
($1890000 x 15%)
Residual income $3,25,080
1
Average operating assets
$18,90,000
2
Margin
14%
Turnover
2.30
ROI
32.20%
3
Residual income
$3,25,080
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