Financial data for Joel de Paris, Inc., for last year follow Joel de Paris, Inc.

Question

Financial data for Joel de Paris, Inc., for last year follow Joel de Paris, Inc. Balance Sheet Beginning Ending Balance Balance Assets Cash Accounts receivable 138,000 128,000 347,000 475,000 576,000 482,000 Plant and equipment, net 829,000 845,000 Investment in Buisson, S.A. 406,000 431,000 245,000 248,000 Land (undeveloped) 2,541,000 2,609,000 Total assets Liabilities and Stockholders' Equity Accounts payable Long-term debt Stockholders' equity $382,000 $339,000 1,008,000 1,008,000 1,151,000 1,262,000 Total liabilities and stockholders' equity 2,541,000 ,609,000 Joel de Paris, Inc. Income Statement 4,393,000 Sales Operating 3,690,120 expenses Net operating 702,880 income Interest and taxes: Interest expense 129,000 Tax expense 210,000 339,000 Net income $363,880 The company paid dividends of $252,880 last year. The "Investment in Buisson, S.A.," on the balance sheet represents an investment in the stock of another company. Required 1. Compute the company's margin, turnover, and return on investment (ROl) for last year. (Round your Turnover answer to 1 decimal place. Round your Margin and ROI percentage answers to 1 decimal place(i.e 0.123 should be entered as 12.3.) Turnover ROI 2. The board of directors of Joel de Paris, Inc., has set a minimum required rate of return of 21%. what was the company's residual income last year? Net operating income Minimum required retum Residual income

Explanation / Answer

Solution:

1)

Margin = Net Income / Sales x 100 = $363,880 / 4,393,000 x 100 = 8.28% or 8.3%

Turnover = Sales / Average Total Assets

Average Total Assets = (Beginning + Ending) / 2 = (2541,000 + 2609,000)/2 = 2,575,000

Turnover = Sales 4,393,000 / Average Total Assets 2,575,000 = 1.7

ROI = Margin x Turnover = 8.3 x 1.7 = 14.1%

2) Calculation of Residual Income

Net Operating Income

702,880

Minimum Required Return (Average Total Assets 2,575,000 x Minimum required rate of return 21%)

$540,750

Residual Income (702880 – 540750)

$162,130

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Net Operating Income

702,880

Minimum Required Return (Average Total Assets 2,575,000 x Minimum required rate of return 21%)

$540,750

Residual Income (702880 – 540750)

$162,130

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