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 $481,500 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 $ 128,000 $ 139,000 Accounts receivable 344,000 477,000 Inventory 563,000 475,000 Plant and equipment, net 895,000 879,000 Investment in Buisson, S.A. 394,000 426,000 Land (undeveloped) 254,000 246,000 Total assets $ 2,578,000 $ 2,642,000 Liabilities and Stockholders' Equity Accounts payable $ 375,000 $ 346,000 Long-term debt 1,005,000 1,005,000 Stockholders' equity 1,198,000 1,291,000 Total liabilities and stockholders' equity $ 2,578,000 $ 2,642,000

Explanation / Answer

1 Beginning operating assets=2578000-394000-254000= 1930000 Ending operating assets=2642000-426000-246000= 1970000 Average operating assets = (1930000+1970000)/2= 1950000 2 Margin = Net operating income/Sales=877500/4875000= 18% Turnover = Sales/Average operating assets = 4875000/1950000= 2.5 ROI = Margin*Turnover = 18%*2.5= 45% 3 Residual income = 877500-(1950000*15%)= 585000

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