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

Question

Financial data for Joel de Paris, Inc., for last year follow: Doel de Paris, Inc. Balance Sheet Beginning Balance Ending Balance Assets Cash Accounts receivable Inventory Plant and equipment, net Investment in Buisson, S.A Land (undeveloped) Total assets Liabilities and Stockholders' Equity Accounts payable Long-term debt Stockholders' equity Total liabilities and stockholders' equity $ 131,088 131,000 479,00e 475,000 785,900 430,00e 247,000 $ 2,475,000 2,547,000 347,000 568,900 784,000 395,e00 25e,e0e $378,000 333,000 1,016,000 1,198,00e $ 2,475,000 $2,547,000 1,016,00e 1,081,000 Joel de Paris, Inc. Income Statement Sales Operating expenses Net operating income Interest and taxes: $ 4,440,ee0 3,685,200 754,800 Interest expense Tax expense $ 119,0e0 198,000 317,000 $437,800 Net income The company paid dividends of $320,800 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 "ROl" to 2 decimal places.) 3. What was the company's residual income last year?

Explanation / Answer

Answer 1 Average operating assets for last year = (Beginning total assets + Ending Total assets)/2 Average operating assets for last year = ($2475000+$2547000)/2 = $25,11,000 Answer 2 Margin ratio i.e. Sales Margin ratio = Net Income / Sales = $4,37,800 /$44,40,000 = 9.86% Turnover ratio i.e. Investment Turnover ratio = Sales / Average operating assets = $44,40,000/$25,11,000 = 1.77 times Return on Investment = Margin ratio * Turnover ratio = 9.86% * 1.77 = 17.44% Answer 3 Company's residual income last year = Net Income - Dividend paid = $437800 - $320800 = $1,17,000

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